
Oass VV^aAni . 

. 7 



\t 



Practical Economics 



A COLLECTION OF ESSAYS RESPECTING CERTAIN OF THE RECENT 
ECONOMIC EXPERIENCES OF THE UNITED STATES 



BY 



DAVID Af WELLS, LL.D., D.C.L. 

MEMBRE CORRESPONDANT DE l'iNSTITUT DE FRANCE, CORRESPONDENTE DELLA REALE ACCADEMIA 

DE LINCEI, ITALIE, ETC. 



"Experience keeps a dear school ; but fools will learn in no other, and scarce in 
that ; for it is true we may give advice, but we canitot give conduct. — BENJAMIN 
Franklin. 



NEW YORK Sl LONDON 

P. PUTNAM'S SONS 
1894 






A^ 






COPYRIGHT BY 

G. P. PUTNAM'S SONS 






i 



Press of 

G. P. Putnam's Sons 

New York 



TO 
The Hon. HUGH McCULLOCH 

AS A TESTIMONIAL TO HIS HIGH STATESMANSHIP AND UNQUESTIONED INTEGRITY 

IN SUCCESSFULLY DEALING, AS SECRETARY OF THE TREASURY OF THE 

UNITED STATES, WITH SOME OF THE MOST DIFFICULT FINANCIAL 

PROBLEMS THAT HAVE EVER BEEN PRESENTED TO A FINANCE 

MINISTER, AND AS A MEMENTO OF A FRIENDSHIP 

THAT YEARS OF OFFICIAL AND PRIVATE 

INTERCOURSE HAVE CREATED 

AND STRENGTHENED 

THIS VOLUME 



PREFACE. 



The essays embraced in this volume — with three exceptions — 
were originally contributed to and published inihe Atlajitic Maga- 
siiie, the Priyiceton Review, the Nation, and the N. Y. World, at 
different dates from 1872 to 1884. The exceptions are "The 
Dollar of the Fathers vs. The Dollar of the Sons," which was 
published privately ; the essay on " The Production and Distribu- 
tion of Wealth," which has heretofore been published only in the 
Proceedings of the American Social Science Association ; and the 
fourth chapter of " Our Experience in Taxing Distilled Spirits," 
which was written specially for this volume, and has never before 
been printed. 

The chief warrant for their republication in a collected form 
is to be found in the circumstance that, with the exception of the 
final article of the series, they each illustrate a phase in the re- 
cent economic experiences of the United States, which has not as 
yet been discussed or related as a part of any detailed and con- 
secutive history ; an experience in which questions of the highest 
importance in respect to the use and issue of currency, the im- 
position of taxes, the collection of revenue, and the regulation of 
trade and commerce — all involving transactions of enormous 
magnitude and infinite detail — have been discussed, regulated by 
legal enactments, and carried to practical results, without, for 
the most part, any reference whatever to accepted economic 
principles, and often mainly under the influence of selfish and 
sometimes of corrupt motives and agencies. A century hence, 
except for such chronicles of recent tariff legislation as are here 
given, the writer is of the opinion that the world would find it 
very difficult to believe that such an illiberal commercial policy 
and body of tax and navigation laws as now exist could ever 
have been maintained and defended for any length of time, by a 
people so free, well educated, and jealous of their individual 



VI PREFA CE. 

rights as those of the United States ; while in respect to the ex- 
perience of the United States in the taxing of distilled spirits, it 
is safe to affirm that nothing similar, viewed from an economic 
and moral standpoint, ever before occurred in any country of 
modern civilization, or is likely to occur again. 

The author accordingly indulges in the belief that these 
essays, although fragmentary, will not, as now published in a 
collected form and Avith some revisions and additions, be regarded 
as a wholly unimportant contribution to the existing stock of 
economic knowledge. 

David A. Wells. 

Norwich, Conn., October, 1885. 



CONTENTS. 



)>AGE 

A Modern Financial Utopia : How It Grew Up, and What Became of It . . i 
The True Story of the Leaden Statuary ; or, A Curious Chapter in Economic 

History ............. 21 

The Silver Question ............ 34 

Are Gold and Silver Indispensable as Measures of Value ? .... 58 

Tariff Revision : Its Necessity and Possible Methods. I, .... 64 

Tariff Revision : Its Necessity and Possible Methods. II, .... 80 

The Most Recent Phases of the Tariff Question. I. ..... 98 

The Most Recent Phases of the Tariff Question. II. 117 

The " Foreign Competitive Pauper- Labor " Argument for Protection . .133 

Our Experience in Taxing Distilled Spirits. I. ...... 152 

Our Experience in Taxing Distilled Spirits. II. ..... . 176 

Our Experience in Taxing Distilled Spirits. III. ...... 194 

Our Experience in Taxing Distilled Spirits. IV. ...... 212 

Influence of The Production and Distribution of Wealth on Social Development, 235 



Tii 



A MODERN FINANCIAL UTOPIA: HOW IT GREW 
UP, AND WHAT BECAME OF IT. 

Atlantic Monthly, April, 1874. 

THERE is one great, plain, practical fact in respect to irre- 
deemable paper money, which in itself is a sufficient answer 
to all the arguments that may be advanced in its favor. And that 
is, that there cannot be one single instance referred to in the history 
of any state, nation, or people, in which its adoption and use has 
not been wholly disastrous. The more conspicuous examples and 
illustrations which prove this assertion — namely, the John Law 
scheme of 1716-1720, the currency of the American colonies be- 
fore the Revolution, the Continental money, the French as signal s ; 
and later and in this century, the paper-money experience of 
Austria, Russia, Italy, Spain, Turkey, and the South American 
states — are all more or less familiar ; but there is another ex- 
ample, little known, and rarely if ever referred to, which, occur- 
ring within a comparatively recent period, and under conditions 
analogous to those which in the opinion of many render the 
United States an exception to all the rest of the world, is no less 
interesting and instructive. We refer to the fiscal experience of 
the Republic of Texas, which, during the brief period of its ex- 
istence as an independent nation, committed on a small scale 
nearly all the financial blunders, and tried nearly all the financial 
experiments, which the greater nations of Europe have before and 
since committed and tried on a large scale, and, as might naturally 
have been expected, with an almost exact parallelism of results. 
The details of this curious history were first collected by the late 
William M. Gouge, of Philadelphia, — an American writer on 
finance whose reputation was never commensurate with his worth 
and abilities, — who visited Texas after its annexation, for the pur- 
pose of specially studying up this subject ; and whose work, pub- 



2 PRACTICAL ECONOMICS. 

lished near a quarter of a century ago, and now a rare volume, 
constitutes the source from which has been derived the following 
information. 

Previous to the year 1835, Texas was one of the states of the 
Republic of Mexico ; and its currency consisted of gold and sil- 
ver, and, to a very limited extent, of the notes of the banks of the 
United States. As the civilized population was small, no large 
amount of currency of any kind was required, but as compared 
with other newly settled countries, money was reported " to have 
been plenty." A great part of the Texan currency consisted of 
what were termed " hammered dollars," or old Spanish dollars 
from which the royal efKigy had been effaced by the Mexicans as 
a testimony of disrespect for their former rulers. Time contracts 
were however made in new Mexican dollars, which were termed 
" eagle money," and circulated at one hundred cents to the dol- 
lar ; while the " hammered dollar," though containing fully as 
much pure silver, circulated at only ninety cents ; the probable 
reason for the currency depreciation of the latter being that the 
destruction of their certificate of value effected by defacing the 
stamp, also prevented their use in settling foreign exchanges, and 
consequently their exportation. 

After the commencement of the Texan revolution, and the 
inauguration of a provisional government, in November, 1835, 
hammered .money gradually disappeared from circulation, and 
bank-notes i from the States came in more freely and constituted 
the chief currency. In 1837, however, the banks of the United 
States suspended specie payments, and while all of the circulating 
medium of Texas became greatly depreciated, a very consider- 
able portion derived from the banks of the State of Mississippi 
became altogether worthless. " Thereby," says the historian 
above referred to, " many of the people of Texas suffered severely, 
but their aggregate losses did not equal their aggregate gains, as 
many of these notes had been obtained in loans, and many of 
these loans were not repaid." 

From the very first the Texans do not appear to have ever 
allowed themselves to be embarrassed by the idea of Old World 
bankers, political economists, and doctrinaires, that the circulating 
medium of a country should be based upon the precious metals. 
They were wiser than all that ; and they had in their possession 



A MODERN FINANCIAL UTOPIA. 3 

something more valuable than gold and silver, — the element and 
source of all wealth, — namely, an almost unlimited quantity of 
cheap, fertile land. This was the true thing, in their opinion, to 
bank on, and bank on it they did. The first bank chartered, 
nearly six months before the commencement of hostilities, was 
the " Commercial and Agricultural Bank " of the department 
of Brazos. Its capital was not to exceed one million of dollars, 
divided into shares of one hundred dollars each. It was author- 
ized to establish branches anywhere and everywhere ; receive 
eight per cent, per annum on loans not exceeding six months, and 
ten per cent, on loans exceeding that time ; and only the capital 
of the bank was to be responsible for the notes it issued. But 
the subscribers were required " to adequately secure the value of 
their shares with real estate in the republic^ In short, it was a 
most liberal charter, and the only thing any way illiberal about it 
was the single clause, " that as soon as one hundred thousand dol- 
lars, at least, have entered the vaults of the bank, it may com- 
mence operations." " Dollars," however, at that time, in Texas, 
says our historian, " meant just whatever tlte people meant to make 
it mean,"' William M. Strong, of Pennsylvania, Associate Justice 
of the Supreme Court of the United States, had not then taken 
his seat on the bench ; but the Texans in 1835 had anticipated the 
sentiments he expressed when he gave the legal-tender decision in 
1871, that " value was an ideal thutg" ' / that " it is hardly correct to 
speak of a standard of value " ' / that " the gold and silver thing we 
call a dollar is, 171 no sense, a standard of a dollar " ' / in fact, that 
any thing is a dollar which the law-making powers may imagine it 
to be, and that it is not at all necessary that their " imagining " 
for one year should be the same as their " imagining " for some 
other and subsequent year. And as the Bank of Agriculture and 
Commerce appears to have commenced operations, and as there is 
no evidence that the one hundred thousand dollars was ever paid 
in, we are warranted in supposing that the " ideal " took in every 
respect the place of the real. That the Congress of Texas had 
also faith to a large extent in the ideal standard of value is made 
evident by the fact that, by an act passed December, 1836, the 
secretary of the treasury was authorized and empowered " to 
negotiate a loan from any bank or banks that may be established 

* Decisions Supreme Court of the United States , 187J. 



•4 PRACTICAL ECONOMICS. 

in this republic, of sufficient amount for the payment of all just 
claims " held by certain creditors against the government ; and 
lest the Bank of Agriculture and Commerce, with its capital of 
one million of " ideal " dollars, and the value of its shares made 
good by the pledge of real estate, should not be able to afford 
sufficient banking facilities to a population not exceeding fifty 
thousand, the " Texas Railroad and Navigation Banking Com- 
pany " was in 1836 incorporated in addition. The capital of this 
company was fixed at five millions, to be increased if desired to 
ten millions, with the right of connecting the waters of the Rio 
Grande and the Sabine by means of internal navigation, and the 
privilege of making branch canals and branch roads in every 
direction ; and this too at a time when the Republic of Texas had 
not the means of supporting a navy sufficient to protect its coasts 
from the attacks of one small sloop of war beloging to the Mexicans. 
The five millions of stock were immediately subscribed by eight 
individuals and firms; but the operations of the banking company 
were exceedingly limited, and are thus reported : None of the 
subscribers paid in any thing. One sold his interest, however, to 
a firm in New York, and took his pay in store-goods. A second 
sold his for ten thousand dollars ; while a third swapped his for 
three leagues of land, which he subsequently sold at ten dollars 
and a half an acre, " The rest of the subscribers retain their 
original stock to this day." Other projects of a like character 
were brought forward; namely: " A Joint-Stock Company for 
the Erection of a Hotel and Bath House at Velasco, with Banking 
Privileges "; " The Texas Internal Improvement and Banking Com- 
pany"; ''The Red River and Aransaso Bay Navigation, Railroad, 
and Banking Company "; and finally, one for establishing a bank on 
the faith of the government. All these projects were favorably 
received ; but before the necessary laws could be passed, to put 
them in operation, news was received of the general failure of the 
banks of the United States (1837), and the republic was deprived 
of its prospective capital, enterprise, and consequent develop- 
ment. To supply the necessities of a circulating medium oc- 
casioned by the discredit of bank-notes issued in the United 
States, individuals and municipalities commenced in 1837 to issue 
" shin-plasters," or notes for the fractional parts of a dollar, and 
continued to do so until 1840, when an end was put to them by 
the bankruptcy of the issuers. 



A MODERN FINANCIAL UTOPIA. 5 

It is now desirable to turn back and consider more directly 
the means by which Texas provided funds to carry on the war. 
At the outset the new republic had, apart from the pledge or sale 
of its lands, but few financial resources. A financial report made 
to the provisional government or council in November, 1835, 
brought out the fact, that although an army was in the field, engaged 
in active operations, yet " our finances, arising from the receipt of 
dues for lands, as will appear on file in Mr. Gail Borden's report, 
which were in his hands, are fifty-eight dollars and thirty cents. 
This money has been exhausted, and also an advance by the 
president of the council of thirty-six dollars. There were also 
several hundred dollars in the hands of the alcalde of Austin. 
Upon this money several advances have been made ; as such you 
may consider that at the present moment the council is out of 
funds." 

But it will never do to despise the day of small things. The 
men who had undertaken to make of Texas a free and in- 
dependent republic were, in respect to audacity, enterprise, and 
self-reliance, typical emigrants from the great American nation, 
and having put their hands to the plow had no intention of stop- 
ping half-way in the furrow. But to succeed in their undertaking 
"ways and means " were indispensable ; " and finding," says Mr. 
Gouge, *' that other nations in their periods of exigency had re- 
sorted to taxing, borrowing, begging, selling, robbing, and cheat- 
ing, they determined to try all six," and he might have added, 
they in all six succeeded. The first feasible and ready way of 
collecting a revenue through taxation, that suggested itself, was 
by duties on imports, and the Texan legislators accordingly took 
to the tariff after the most approved American fashion ; enacting 
a given rate of duties on the 12th of December, revising the same 
on the 15th, and making a new tariff on the 27th. In the ten 
years that Texas existed as an independent republic, it had no 
less than seven distinct tariffs. 

Export duties on cotton were also recommended. The chief 
reliance of the government was, however, upon loans, and com- 
missioners were early appointed to borrow one million of dollars 
at a rate not exceeding ten per cent., on bonds running for not 
less than five or more than ten years ; the commissioners being 
authorized to pledge the public faith, the public lands, the public 



6 PRACTICAL ECONOMICS. 

revennes, and in short every thing that Texas possessed in the 
way of security, for their repayment. 

The idea that " a national debt was a national blessing " was one 
for which it had been generally supposed an agent of Jay Cooke 
& Co., employed to write up the 5-20 bonds, in 1863, was entitled 
to a patent for originality ; but the records of the Congress of 
Texas show that the unexpatriated Yankee was after all but a 
poor though probably unconscious imitator, and that his concep- 
tions of the felicity of owing somebody nationally never began to 
rise to the height of those indulged in by a Mr. Chenoweth, who, 
as chairman of the national committee on finance, submitted to 
the first Congress on the i6th of December, 1835, a report, of 
which the following is an extract : — 

" At present our indebtedness is small, and our liabilities 
almost entirely to private individuals, whose claims, your com- 
mittee are of opinion, may properly be merged and cancelled by 
the creation of substantial loans. An outstanding national debt 
may in many respects be looked upon as beneficial, by a com- 
munity isolated and dependent as Texas, if the creditors, as such, 
can afford us substantial patronage. And until we can stand im- 
mutable among the nations of the earth, your committee would 
advise tJiat the pecuniary interests of our creditors will excite for us 
the sympathy a7id protection of niankitid.'^ 

In one sense Mr. Chenoweth's "advice" proved correct, though 
not altogether in the manner he anticipated ; for the various debt 
certificates of Texas being largely disposed of in the United 
States, an earnest sympathy for the republic was thereby naturally 
created among the holders ; and this sympathy ultimately was 
most powerful in securing the annexation of Texas to the United 
States, and subsequently an appropriation from Congress of the 
sum of $10,000,000, with the understanding that the same should 
be used in the payment of the debts of the republic. 

Under the head of " selling," as an expedient for providing 
ways and means, the public lands were offered by the Government 
of Texas at low prices and in any quantity; but as the cash value 
of the article was small, — the price fixed by the Mexican Govern- 
ment before the war being less than four cents per acre, — and as, 
furthermore, until after independence was fully established it 
was a question whether the vendor could pass an adequate 



A MODERN FINANCIAL UTOPIA. 7 

and sufficient title, the receipts from this source were incon- 
siderable. 

Under the head of " begging," the foreign agents of the 
republic were authorized to receive money or donations of any- 
kind that might be given by citizens of any country they might 
visit ; and that the hat thus passed round did not return empty is 
evident from the circumstance that on the 30th of November, 
1835, formal resolutions of thanks were passed by the council to 
John Hutchins of Natchez, Mississippi, for his liberal donation 
of one hundred dollars " for the use of Texas in her struggle for 
liberty." 

Under the head of *' robbing," the council, on the 17th of 
January, 1836, enacted, that whereas it was impossible for the 
troops at Bexar ** to drive beeves and procure provisions for their 
use without horses ; Therefore be it resolved, that the commandant 
be authorized to employ as many Mexicans, or other citizens, for 
the purpose of driving up beeves, and procuring provisions, as 
may be required for that purpose." Letters of marque and re- 
prisal were also early authorized and issued ; but in this depart- 
ment of robbery the Texans could plead the precedents of the 
best-established and most Christian governments. 

Under the heading of " cheating," Mr. Gouge groups the 
several acts and proceedings of the republic in respect to 
the manufacture and issue of paper money. The national 
treasury was first established, so far as the election of a treasurer 
could establish it, in November, 1835. Previous to this 
there had been a fiscal committee, and this had made a re- 
port, which, as the first official financial document of a de facto 
government, destined in the course of the following year to 
come into possession and control of a territory larger than 
France, deserves to be handed down to posterity. The 
report related to a matter of extortion and swindling on the 
part of certain contractors, and alleged, that one Thomas Bray, 
for furnishing '' Cole's company of wagoners with one hundred 
and seven pounds of bread, had charged twenty-five cents per 
pound, or twenty-six dollars and seventy-five cents, whereas he 
should have charged but fourteen cents per pound ; and that one 
Madison M. Stevens had charged an extortionate sum for " carry- 
ing one express to Nacogdoches." It was accordingly recom- 



8 PRACTICAL ECONOMICS. 

mended that Bray be allowed but fifteen dollars and seventy-eight 
cents, and Stevens but ten dollars and fifty cents in full of all 
accounts, and the report was ordered to lie on the table. A 
month afterwards, by some skill of manipulation not unworthy of 
these later days, the committee made another report, in which it 
was recommended that Messrs Bray and Stevens be paid in full, 
— and paid in full they probably were. How good a field there 
would have been for modern adventurers to have operated in is 
illustrated by the following extract from a message which the 
first governor, Henry Smith, about this same time sent in to the 
'^Honorable President and Members of the Ge?ieral Council^ He 
says : — 

" Instead of acting as becomes the counsellors and guardians 
of a free people, you resolve yourselves into low, intriguing, 
caucusing parties; pass resolutions without a quorum, predicated 
on false premises ; and if you could only deceive me enough, you 
would join with it a piratical co-operation. You have acted in 
bad faith, and seem determined by your acts to destroy the very 
constitution you are pledged and sworn to support. I have been 
placed on the political watch-tower, and I hope I will be able to 
prove a faithful sentinel. You have also been posted as sentinels; 
but you have permitted the enemy to cross the lines, and you are 
ready to sacrifice your country at the shrine of plunder. Mr. 
President, I speak collectively, as you all form one whole, though 
at the same time I do not mean all. I know you have honest 
men there; but you have Judas in the camp — men who, if pos- 
sible, would deceive their God. 

" Notwithstanding their deep-laid plans and intrigues, I have 
not been asleep. They will find themselves circumvented in 
every tack. I am now tired of watching scoundrels abroad and 
scoundrels at home, and as such I am now prepared to drop the 
curtain. 

" Look around upon your flock ; your discernment will easily 
detect the scoundrels: the complaint, contraction of the eyes; 
the gape of the mouth ; the vacant stare ; the hung head ; the 
restless, fidgety disposition; the sneaking, sycophantic look; a 
natural meanness of countenance ; an unguarded shrug of the 
shoulders ; a sympathetic tickling and contraction of the muscles 
of the neck, anticipating a rope ; a restless uneasiness to adjourn, 



A MODERN FINANCIAL UTOPIA. 9 

dreading to face the storm themselves have raised. Let the 
honest and indignant part of your council drive the wolves out of 
the fold. Some of them have been thrown out of folds equally 
sacred, and should be denied the society of civilized men. 

" But, thanks be to my God, there is balm in Texas, and a 
physician near." 

And the governor then, in the capacity of a physician, pro- 
ceeded to administer the balm by ordering the council to be 
forthwith prorogued, " unless your body will make the necessary 
acknowledgment of your error, and forthwith " (before twelve 
o'clock to-morrow) " proceed " (by issuing a circular and furnish- 
ing expresses) " to give it circulation and publicity, in a manner 
calculated to counteract its baleful effects." 

But the council would n't be prorogued, and refused to accept 
the balm. They referred the governor's message to a committee, 
who forthwith reported : " That they are unable to express any 
other views than indignation at language so repulsive to every 
moral feeling of an honorable man, and astonishment that this 
community should have been so miserably deceived in selecting, 
for the high ofifice of governor, a man whose language and con- 
duct prove his early habits of association to have been vulgar 
and depraved." The report concluded with resolutions that they 
would sustain the dignity of the government, and that Henry 
Smith be ordered forthwith to cease the functions of his office. 
The next day they issued an address to the people, in which they 
repelled the charges brought against them in " that impudential 
document," and brought counter-charges against his excellency 
himself. A single paragraph is given by Mr. Gouge to show the 
character of this address : " All these acts of stubbornness and 
perverseness were not sufficient to gratify his thirst for sole do- 
minion. His dignity was insulted at the idea of the existence of 
the co-ordinate branch of government to curb his acts and check 
his usurpation. He became more and more restless, until, 
enraged at the presumption of the council, in the exercise of a 
constitutional right, he ignites ; his fury, in a blaze, consumes his 
prudence (what he had) ; he orders the council to disperse, shuts 
the door of communication between the two departments, and 
proclaims himself the government." 

At this rejoinder and counter-attack Governor Smith seems to 



10 PRACTICAL ECONOMICS. 

have been considerably astonished ; and sought to reconcile mat- 
ters with the council by sending the next day a message, in which, 
after confessing that he had used " much asperity of language," 
he concludes as follows: — 

" Believing the rules of Christian charity require us to bear and 
forbear, and as far as possible overlook the errors and foibles of 
each other, in this case I may not have exercised towards your 
body that degree of forbearance which was probably your due. 
If so, I have been laboring under error, and as such, hope you 
will have the magnanimity to extend it to me, and the two 
branches again harmonize to the promotion of the true interests 
of the country." But it was of no use ; Governor Smith's 
" Christian charity " was exercised too late. The council deposed 
him so far as they could, and for the remainder of the session 
Lieutenant-Governor Robinson " reigned in his stead." 

The formal establishment of a national treasury was one 
thing; the filling it with money was quite another and different 
thing. And as sufificient funds for defraying the expenses of the 
government and the army did not come from any of the ex- 
pedients of taxation, loans, the establishment of companies with 
banking privileges, the sale of lands, begging, or seizing private 
property by land and sea, the republic next undertook to pay its 
way by drawing drafts on itself. To give these drafts credit and 
circulation an act was passed, December, 1836: "That it shall be 
the duty of the several collectors (of customs) to receive the 
orders of the auditor upon the treasury of the republic when 
offered by importers in payment of duties at the time of impor- 
tation" ; and in June following it was enacted : " That properly 
audited drafts on the treasury of the republic shall be received in 
payment of taxes imposed, except on billiard tables, retailers of 
liquors, and nine-pin alleys, or games of that kind." By these 
two acts, Texas gave her audited drafts a greater value than they 
would otherwise have possessed, and caused them to pass into 
hands that otherwise would not have received them. From first 
to last, the issue of these audited drafts amounted to about eight 
millions of dollars ($7,834,207). They do not appear to have ever 
to any extend answered the purpose of currency; and the circum- 
stance that they were issued for odd numbers of dollars and cents, 
and when passed from hand to hand required a calculation, 



A MODERN FINANCIAL UTOPIA. 1 1 

doubtless contributed to prevent such a result. They gradually- 
depreciated in value, and in December, 1837, one year after the 
passage of the act authorizing their reception for customs dues, 
another act was passed declaring that the state would no longer 
receive such drafts in payment of debts due to itself. 

The greatest and best stroke of financial policy on the part of 
the new republic was, however, reserved to the last ; and in No- 
vember, 1837, when borrowing, begging, selling land scrip, and 
issuing audited drafts had been exhausted as expedients for raising 
money, the government commenced the issue of treasury notes. 
These notes were in the form of bank-notes, and by law were 
required to be printed " in neat form .'' They were also for round 
or even sums, and mainly for small amounts, and specified on 
their face " that they ivill be received in payment for laiids and other 
public dues, or be redeemed with any moneys in the treasury not 
otherzvise appropriated.'' 

And here commences by far the most valuable of all the 
lessons deducible from the study of the fiscal experience of the 
Republic of Texas — a lesson, moreover, exceptionally interesting, 
from the circumstance that we find in it a showing and demon- 
stration that the working and effect of a system of irredeemable 
paper money is one and the same, whether the field of its influ- 
ence be a rich, densely populated old country like Austria or 
France, or a disturbed, thinly populated community, with little 
accumulated capital, and occupying, as it were, the very border 
■line between barbarism and civilization. 

The first noticeable and most interesting fact connected with 
the history of these Texan treasury notes is, that although the 
credit of Texas at the time of their issue was so bad that a foreign 
loan could not be negotiated, and the audited drafts on the treas- 
ury had so far depreciated as to have but a nominal value, and 
that of less than fifteen cents on the dollar, yet the notes them- 
selves, though practically unredeemable, were when first issued at 
par, or nearly par, with specie, and furthermore were kept so for 
months, or until their issue exceeded in amount half a million of 
dollars. The explanation of this curious phenomenon is, that the 
people of Texas, at the time of the authorization of these treasury 
notes, had practically no circulating medium for effecting ex- 
changes, or none that was really worthy of the name ; and 



12 PRACTICAL ECONOMICS. 

although a community can get afong in its business without a 
currency, as it can without horses and carts, ships and steam^ 
engines — all alike instrumentalities for effecting the interchange 
of commodities — there is no community that will dispense with 
any of these agencies if it can help it. With the outbreak of the 
revolution the hammered money and the eagle money soon disap- 
peared. With the failure of the banks of the United States in 
1837, the notes of the banking institutions of the Southwestern 
States, which had come in like a flood and had supplied to Texas 
the void occasioned by the disappearance of its specie circulation, 
became worthless ; while the issue of shin-plasters or fractional 
notes of persons and firms, although continued, was by law for- 
bidden. The want of some medium that should have one value, 
and would regulate prices and facilitate exchanges, was therefore 
much felt ; and when the government gave the people the best 
medium they could, threw around it all the guaranties that it was 
in their power to supply, and issued no more of the " medium " 
than was necessary to meet a specific want, the people in turn ac- 
corded to the medium a value proportional to the work it performed, 
or the necessity it supplied. The first issue of notes, in addition 
to a pledge of government faith to receive them in payment of all 
public dues and to redeem them as soon as there was any thing to 
redeem them with, carried also a promise of ten per cent, interest; 
a rate easily calculated, and which offered an inducement for 
hoarding the notes, to such Texans as could afford it and had 
also faith in their ultimate payment. The whole revenue from 
customs was also devoted to sustaining the credit of these treas- 
ury notes, and about this time the laws for raising a revenue from 
imports began to be effective ; the gross revenue accruing from 
the customs for the quarter ending September 30, 1837, having 
been about sixty thousand dollars. 

The Texans were, moreover, exceedingly wise in their day 
and generation in another matter. The original treasury notes, 
although intended to serve as currency, were nevertheless, from 
the fact that they carried ten per cent, interest, in reality a 
species of national " bond " ; and being issued in round sums of 
small amounts, as low even as one dollar, they were taken up as 
investments, or speculated in by persons of very small means, 
who never regarded themselves in any sense as capitahsts. Very 



A MODERN FINANCIAL UTOPIA. 1 3 

considerable sums thus found their way into the United States 
and were permanently held there, and even the negraes of New 
Orleans were enabled to enjoy the luxury of speculating in foreign 
securities. It is also curious to recall that at the time of the for- 
mation of the syndicate in 1870-71, for the purpose of funding 
the national debt of the United States at a lower rate of interest 
than six per cent., this very same plan that worked so successfully 
in Texas in 1837 was brought forward and urged before the com- 
mittees of Congress with great ingenuity and ability by the then 
head of a European banking firm, as a condition precedent and 
essential to placing permanently a large amount of Federal secu- 
rities among the masses in Europe, at a very low rate of interest. 
According to Mr. Gouge, Texas treasury notes continued to be at 
par, or nearly at par, with specie, until their amount exceeded 
half a million of dollars. If we take the population of Texas at 
that time as about forty thousand, and suppose that one fifth of 
the entire issue of half a million was hoarded, or floated off into 
the United States, then the result affords a very striking and 
curious confirmation of the theory, held by many of the best 
informed bankers and economists, that an average of about ten 
dollars per capita is the utmost limit of paper money that a com- 
munity can permanently float, and at the same time keep on a 
level or par with specie.' It is also a fact in regard to the Conti- 
nental money, that, so long as its issue was not in excess of thirty 
millions, or at the rate of about ten dollars per capita, or up to 
January, 1778, its maximum depreciation was not in excess of five 
per cent., as compared with specie. 

But all history shows that when a nation has once embarked 
in a scheme of irredeemable paper money, it is extremely difficult, 
if not wholly impossible, to resist the current and drift of its 
influence ; and the experience of Texas constitutes no exception 
to this general rule. The five hundred thousand paper treasury 
dollars had done good service ; they had doubtless been printed 
in a " neat form " as the law provided ; had proved attractive to 
the masses, and had relieved the most urgent financial necessities 

' The theory is that if the notes are redeemable in specie on demand, and more 
than ten dollars per capita is issued, the excess will be presented for redemption and 
be thus voluntarily retired. If the notes are not redeemable on presentation, the 
moment the line of excess is passed, that same moment indicates the commencement 
of permanent depreciation. 



14 PRACTICAL ECONOMICS. 

of the republic. Why should not the people of Texas have more 
of so good a thing ? They accordingly, through their legislative 
agents and representatives, determined to have more ; and in the 
spring of 1838, a bill, bearing the familiar title of "■ An act to define 
and limit the issue of promissory notes" was reported in the House 
of Representatives, which authorized an additional issue of one 
hundred and fifty thousand dollars. The Senate, however, in- 
creased the existing amount to one million, and as thus amended, 
the bill passed both houses by large majorities. Sturdy and 
honest Sam Houston was then President, and when the bill came 
up for his signature, he promptly vetoed it, and gave his reasons 
therefor in a message so full of common sense and sound princi- 
ples that there is nothing which people everywhere, who are at- 
tracted b}' the idea of paper money, could to-day read with 
greater profit and instruction. He says: " When the (treasury 
note) currency was projected, both the government and the 
country were without resources. National existence and freedom 
had been achieved, but the struggle had left us destitute and 
naked. There were no banks ! There was no money ! Our 
lands could not be sold, and the public credit was of doubtful 
character ! To avoid the absolute dissolution of the government, 
it became necessary to resort to some expedient that might fur- 
nish temporary relief. This could only be effected by creating a 
currency that should command some degree of credit abroad. 

" It was hoped and believed that, if ^ small issue of government 
paper was made, with specific means of redemption pointed out, 
which appeared to be ample and well guaranteed, and the govern- 
ment should evince a prudent and discreet judgment in its man- 
agement, it would command such articles in the market of the 
United States as were indispensable to the country. 

" The result has justified the expectation." 

But he continues, and his words are as full of truth now as 
then : " The government will fievcr be able, by all the issues it can 
make, to satisfy the demands of private speculation and interest. 
The vast issues of all the banks in the United States (reference 
being here made to the condition of things in 1836-37), in their 
most extended condition, failed to attain this object. There has 
not probably been in circulation at any time more than half a 
million of dollars. The present bill requires the secretary of the 



A MODERN FINANCIAL UTOPIA. 1 5 

treasury to increase the issue to a million. No time or discretion 
is allowed to that oiificer. The circulation of the country is to be 
doubled in as little time as is required to issue the paper." 

The objections of the executive for the moment prevailed ; 
but another bill was passed a week after, which allowed the presi- 
dent to increase the amount of treasury notes to one million, if in 
his judgment the interests of the country required it ; and at the 
same time it specifically appropriated four hundred and fifty 
thousand of such notes, or an amount nearly equal to the whole 
existing issue, to the payment of army, navy, and civil indebted- 
ness. The barriers against unlimited inflation were thus indirectly 
removed, and from this time there does not appear to have been 
any effort to restrain further action in this direction. The first 
issues of these notes, as already stated, carried interest. The new 
issues were without interest, and on account of a red impression 
on their back, were everywhere known as " red-backs " ; thus curi- 
ously anticipating the name — " green-backs " — applied to the 
paper currency of a later generation. 

As might have been expected, with the authorization of the 
new issues the notes began to depreciate ; and the depreciation 
increased with each additional emission. In all, paper money in 
the form of treasury notes to the nominal amount of $4,717,939 
was issued. In January, 1839, these notes were worth no more 
than forty cents oit the dollar ; in the spring of 1839 they were 
worth thirty-seven and a half cents; in 1841, from twelve to fif- 
teen cents; and in 1842 they fell to ten cents, to five cents, to 
four, to three, to two, and finally became utterly worthless. In 
the characteristic language of the times, it required, before the 
close of President Lamar's administration, " fifteen dollars in 
treasury notes to buy three glasses of brandy and water, without 
sugary To the treasury notes succeeded what were termed " ex- 
chequer bills " ; but they were comparatively few in number, and 
never passed to any extent into circulation. " By this time," 
says Mr. Gouge, "there was little circulating medium of any kind 
in Texas ; but this was no great calamity, as the people had but 
little left to circulate. The evils this system did were immense, 
and such as for which, even were it so disposed, the government 
could afford no compensation to the sufferers. They no doubt, 
however, like others in similar circumstances, attributed to the 



l6 PRACTICAL ECONOMICS. 

want of circulating medium the evils they suffered from want of 
circulating capitaiy In all, from first to last, the amount of 
" promissory notes," " audited drafts," " exchequer bills," bonds, 
etc., issued by the Texan treasury, and serving to a greater or less 
extent as "circulating medium," amounted to $13,318,145; or, 
reckoning the population at fifty thousand, more than two hun- 
dred and sixty-six dollars per capita. If paper issues could, there- 
fore, have made a people rich, the Texans ought to have been the 
richest people in the universe. 

One other thing in connection with this subject ought specially 
to be mentioned in all honor to the Texans. In the midst of 
their poverty, and crushed almost to the earth with their burden 
of financial necessities, they never made their government paper 
a legal tender in the payment of private debts ; but every man 
was left at liberty to refuse or receive treasury notes at his 
option. The result was, that when " red-backs" were almost the 
exclusive circulating medium, specie was the standard of ultimate 
reference. If a man bought an article on credit, he gave a note 
promising to pay dollars in silver, or so many treasury notes as 
should, when the note fell due, be worth an equivalent of the 
amount owed in silver. 

But another and no less curious part of this history yet remains 
to be told. The experiment of paper issues, not redeemable in 
specie on demand, to supply the office and function of money, or 
circulating medium, had been fully and fairly tried in Texas, and 
the people, one and all, were so entirely satisfied with their ex- 
perience that they wanted no more for all time like it. They 
accordingly did not content themselves with mere ordinary legis- 
lation ; but when the convention came together, immediately 
after the consummation of the act of annexation to the United 
States, to form a State constitution, the delegates, by one of their 
earliest acts, inserted in the constitution the following sections, 
which were afterward ratified by the people ' : — 

' The movement against the continued use of paper money, in fact, commenced 
in Texas at a date considerably earlier than that above indicated ; the last President 
of Texas, Anson Jones, in December, 1844, using in his inaugural the following lan- 
guage : "The fallacy and danger of a factitious paper currency having been demon- 
strated by every civilized nation upon the earth, and Texas having once participated 
in this demonstration, should now, when she is able to do so, abandon the experiment 
and resort in time to what the experience of the past has conclusively shown to be the 



A MODERN FINANCIAL UTOPIA. • 1 7 

" In no case shall the Legislature have power to issue ' treasury 
warrants,' ' treasury-notes,' or paper of any description inteiided to 
circulate as money T 

" No corporate body shall hereafter be created, renewed, or 
extended, with banking or discounting privileges." 

" The Legislature shall prohibit by law individuals from issuing 
bills, checks, or promissory notes, or other paper, to circulate as 
money." 

" It is never," says Mr. Gouge, in noticing the peculiarities of 
this constitution of Texas, " without deep experience of the evils 
of paper issues that the people impose such restrictions on their 
rulers." 

And the first Legislature that convened after the adoption 
of the constitution, or in the succeeding year, made the following 
further enactment : — 

" No person or persons within this State shall issue any bill, 
promissory note, check, or other paper, to circulate as money." 

'' Everyperson who may violate this act shall be subject to in- 
dictment therefor, by a grand jury, as for a misdemeanor, at any 
time within twelve months after so offending ; and shall be sub- 
ject to a fine of not less than ten dollars, nor more than fifty dol- 
lars, for each and every bill, promissory note, check, or other 
paper, issued by them in violation of the first section of this act." 

These measures practically put an end to the paper-money 
system of Texas. Various subterfuges were afterward resorted 
to, and by means of them paper money, to a very limited extent, 
found its way into circulation in Texas after its annexation to the 
United States. But, as a rule, the generations of Texans who had 
had this experience of " fiat paper money " never again looked 
with favor upon any other currency than specie. The result of 
such a policy on the development and business of the State was 
thus reported by Mr. Gouge in 1852, — seven years after its adop- 
tion : " The result of this hard-money policy is, that business in 
Texas rests on a more stable foundation than it does in many other 

only safe expedient for governments — a hard-money currency as a circulating medium." 
In accordance with this recommendation, the Congress of Texas, in almost one of its 
last acts, forbade the further issue by the government of " any description of paper 
representing money intended for circulation, or to be received in payment of any class 
of revenue " ; and required the secretary to cause to be destroyed all the exchequer 
bills received at the treasury department. 



1 8 PRACTICAL ECONOMICS. 

parts of the Union. That it is absolutely free from vicissitudes is 
what we do not assert. But, unbolstered by bank-credits, and 
governed by that best of all regulators, gold and silver, her mer- 
chants limit their purchases of goods abroad by the actual de- 
mands of the planters at home, measuring that demand by the 
surplus crops the planters have to dispose of. Exchanges are 
regular. The maximum rates never exceed the cost of transport- 
ing specie, and often fall below it. A gentleman at Austin told us 
that he had in the course of years negotiated bills on New York, 
to the amount of two hundred thousand dollars, and had seldom 
given either premium or discount. At Galveston, exchanges on 
New York have not for years been at any time more than one and 
a half premium." 

Prices, Mr. Gouge observes, were not low, but quite as high as 
they are (other things considered) in the most paper-loving por- 
tions of the Union ; thus showing that " hard money and high 
prices are not incompatible." 

" The rate of interest is high, because the profits of trade are 
great. Money is scarce, as money ought to be, for without scarcity 
it would lose its value. But gold and silver is in Texas quite as 
plentiful, in proportion to other circulating wealth, as paper money 
is in New York or Massachusetts." 

Mr. Gouge also, in his record, brings out two other series of 
facts in connection with the history of the paper money of Texas, 
which from their parallelism with results obtained on a larger 
scale, but under similar circumstances, in the United States and 
other countries, are especially worthy of notice. The first relates 
to the incentive given by paper money to national extravagance 
and increase of expenditures ; and in this respect the experience 
of Texas was as follows. The revolution broke out in 1835. 
From that time until the close of 1838, the period covering the 
main military operations and the practical achievement of inde- 
pendence, the Republic of Texas incurred a debt of less than two 
millions of dollars. This small amount was not due to the circum- 
stance that the government had any objections to running in 
debt; "but because few would trust, except such as could not 
well avoid so doing." In 1838, Mirabeau B. Lamar was elected 
president, and held ofifice for three years, or until December, 1841. 
The period of his administration was one of comparative peace, 



A MODERN- FINANCIAL UTOPIA. 1 9 

but it was also the era of paper money and profusion. Lamar in 
his three years' term increased the national debt from less than 
two millions to upwards of seven millions. The average annual 
expenses of his government were also $1,618,405. 

In 1841 General Houston took office as president for a second 
term. The paper-money bubble had exploded, but Mexican hos- 
tilities, which in General Lamar's administration only threatened, 
now actually broke out. Yet in General Houston's last adminis- 
tration not only was the national debt not increased, except by in- 
crements of interest and by the bringing in of back accounts, but 
the average annual expenses of the republic were reduced from 
$1,618,405 to $170,361. Mr. Gouge claims that this experience of 
the republic under President Houston, from 1842 to 1844 inclu- 
sive, shows " that if it had been possible for the Texans to be 
hard-money and prompt-payment men, they might have achieved 
their independence and defrayed all the expenses of the republic, 
at a cost of two hundred thousand a year. But the Texans never 
became economical until constrained by necessity." So long as 
they could borrow, or induce any one to take their paper money, 
they were extravagant ; but when they could borrow no longer, 
and their paper money refused to circulate, then they became 
saving. 

The second series of facts relates to the influence which an ex- 
cess of paper currency in Texas exerted in encouraging imports 
and discouraging exports. Thus during the administration of 
Lamar, — 1839-1840, — when treasury notes were the circulating 
medium, and money was, as it is termed, "abundant," the im- 
ports were nearly six times as great as the exports ; or an average of 
$1,442,733 of imports per annum as compared with an average of 
$247,459 of exports. On the contrary, in two years of Houston's 
second term, 1843-44, when such notes were no longer current, 
the exports nearly equalled the imports ; the average annual import 
being $578,854 as compared with an average annual export of 
$506,444. 

The memory of the events and experiences thus recorded was 
furthermore kept alive for a long period after the annexation of 
Texas (in 1845) to the United States; and continued to exercise 
so great an influence, that during the whole period of the Rebellion 
(1861-65) the paper money issued by the Southern Confederacy 



20 PRACTICAL ECONOMICS. 

found little favor among the people of that State, and circulated 
only under the pressure of military law and of necessity. And 
even after the war was ended, and the supremacy of the Federal 
Government was firmly established and everywhere acknowledged, 
it was found very difficult for a long time to make the average 
Texan of the interior recognize the green-back, or accept any 
thing but specie in exchange for his cotton and his cattle. 



THE TRUE STORY OF THE LEADEN STATUARY; 

OR, A CURIOUS CHAPTER IN ECONOMIC 

HISTORY. 

" A story as amusing as a novel is scarcely what we are accustomed to expect from 
the sedate pen of our excellent economist, Mr, David A. Wells. But that is pre- 
cisely what we are indebted to him for this morning, as the brightest of our fairest 
readers will admit, who hate figures, skip statistics, and would disclaim the ballot if it 
involved learning economics. Mr. Wells has dug up and relates for us the True Story 
of the Leaden Statuary. Its moral draws itself, as in the case of all good and well-told 
stories." — New York World, May ii, 1874. 

THERE is an amusing old story told of the magistrates of a 
certain country town in France, who, before the days of 
street lamps and gas, and as a better security against the unlawful 
act of " vagrom men," passed an ordinance that " no citizen should 
walk out after dark without a lantern," and that disobedience of the 
law should entail a heavy penalty. The watch, vigilant in the per- 
formance of duty, accordingly arrested, the first night after the 
law took effect, a well-known and estimable individual, but of 
waggish propensities, and hauled him up before the local Dogberry 
on charge of having broken the statute. The defendant, however, 
on being asked why punishment should not be inflicted upon him, 
made answer, that he had committed no offence, and in support 
of his plea produced a lantern. It being rejoined that the lantern 
had no candle, he next declared that the law did not require that the 
lantern should contain any candle ; and the statute being examined 
and the defence found valid, the arrested party was dismissed and 
the law so amended as to read, " that no citizen should hereafter 
walk out after dark, without a lantern and a candle." The next 
night the same person being again found walking in darkness 
was again arrested and arraigned, but as before maintained that 
he had committed no offence ; and, in proof thereof, produced a 
lantern and showed that it contained a candle. " But the candle," 



22 PRACTICAL ECONOMICS. 

said Dogberry, " is not lighted." "And the law," rejoined the 
wag, " does not require that it should be"; and this interpre- 
tation being found correct, the accused was once more discharged 
and the statute further amended so as to read, " that no citizen 
should hereafter walk out after dark without a lantern and a 
candle in it, and that the candle should be lighted." 

But the very next night the same incorrigible and troublesome 
person was again brought up before the Court, and this time both 
watch and magistrate thought they had a sure thing of it ; for, to 
all appearances, he had not on this occasion made even a pretence 
of complying with the law. The triumph of the officials was, 
however, of very brief duration, for, to their utter disgust and 
amazement, the accused drew from his capacious coat pocket 
a dark lantern, and showed that it not only contained a candle, 
but that the candle was lighted and burning. Warned by this 
threefold experience, the statute was for a third time amended, 
and this time so fully and clearly that no further practical 
jokes were attempted, and the majesty of the law remained 
unassailed. 

As thus told the above story is manifestly a broad burlesque, 
even in its application to stupid French " country officials," and 
without further foundation than the imagination of its author. 
But it is nevertheless a most curious and amusing circumstance 
that it has been reserved to the United States to furnish out of 
the history of its fiscal legislation a record of actual experience 
which, in many respects, is the exact and truthful counterpart of 
the French burlesque; and, as the incidents involved have often 
(but always incorrectly) been alluded to on the floor of Congress, 
and in the columns of the Press, and may be found pertinent to 
prospective legislation and debate in respect to custom-house re- 
forms and irregularities in all countries, it is proposed to now em- 
body them for the first time, and, as a contribution to economic 
literature, in the form of a complete narration. 

Between the years 1816 and 1828, encouraged by the imposi- 
tion of a low duty on imported metallic lead, the manufacture of 
white lead as a basis for paints came into existence in the United 
States and developed with great rapidity, the principal seats of 
the business being the cities of New York, Philadelphia, and 
Baltimore. But about the years 1826-28 the discovery of the 



THE TRUE STORY OF THE LEADEN STATUARY. 23 

lead mines at Galena, 111., became generally known, and as the 
first reports were to the effect that the deposits were of such un- 
paralleled richness, purity, magnitude, and easy accessibility as to 
make it only a question of time when the whole world, from sheer 
inability to compete, would become wholly dependent for its sup- 
plies of lead on this one locality, it was at once considered desir- 
able by many people to establish, so far as fiscal legislation could 
do it, a most extraordinary economic principle, and one which, 
from that day to this, has proved popular in all tariff enactments 
in the United States ; and this was to make the discovery or 
recognition of the existence of any great natural advantages — 
either in the way of mines, soils, climatic advantages, forests, 
means of intercommunication or national characteristics — the 
immediate occasion for cursing the country by the creation and 
imposition of some new tax, thereby making dear what was be- 
fore cheap, and endeavoring to work up to a state of abundance 
through conditions of scarcity, artificially created and unneces- 
sarily perpetuated. In this particular instance the principle was 
exemplified by raising the duty on lead imported in pigs and bars 
from one cent a pound to three cents; and to this extent increas- 
ing to the consumer the price of the raw material, whether of 
foreign or domestic origin, and of all manufactured products in 
which lead entered as the principal constituent.* As the duty 

' Among other illustrations to the same effect, drawn from actual and subsequent 
experiences, the following are especially worthy of mention. From the foundation of the 
government to the outbreak of the civil war in 1861, the imports of crude or unmanu- 
factured copper into the United States were free, or subject to a mere nominal duty. 
In 1S61, however, in order to help meet the enormous expenditures occasioned by the 
war, a duty of 2 cents per pound on such imports was imposed ; but subsequently, and 
after the requirements for war expenditures had ceased, at the demand of the owners of 
the richest copper mines in the world (which had been discovered on public lands on 
Lake Superior, and sold by the government for a mere nominal price), the duty was 
increased to 5 cents per pound ; a rate so prohibitory, that in 1878 only one pound of 
foreign copper, yielding a revenue to the treasury of 5 cents, was imported. The 
further results of such legislation were, that the owners of the Lake Superior mines, 
on an investment of a few hundred thousand dollars, received from fifteen to twenty 
millions of dollars in dividends ; copper was made higher in price in the United States 
than in any other civilized country ; and the product of the mines being in excess of 
any domestic demand, the resulting surplus was regularly sold in Europe at a much 
less price than the mine owners controlling the domestic market would allow it to be 
sold to the American consumers. And so the discovery of these rich mines of Lake 
Superior, on the public lands of the nation, in place of having proved a benefit, have 
actually resulted in misfortune and detriment of the whole people. Similar experiences. 



24 PRACTICAL ECONOMICS. 

was not at the same time correspondingly advanced on the import 
of white lead, and as the lead-mining interests of Galena were not 
prepared to supply at any price the immediate demand thus 
artificially created for their products in the domestic market, the 
American manufacturers of white lead all at once found their 
business threatened with utter destruction ; and, with intellects 
preternaturally sharpened by a prospective loss of a large invested 
capital, they looked shrewdly about to see in what manner they 
could save and protect themselves. 

And putting on their spectacles, and scrutinizing carefully 
the entire tariff, as modified by the special act of 1828 referred 
to, they soon discovered that the government, while effectually 
closing and barring up the big door by which foreign lead could 
be imported, had inadvertently left wide open a smaller door 
beside it, inasmuch as while Congress had prescribed a duty of 
three cents per pound on lead imported in pigs and bars, they left 
a prior duty of fifteen per cent, ad valorem on the import of old 
lead fit only to be manufactured, unrepealed and in force. Those 
were the days of packet ships and slow communication with the 
Old World ; but we may readily believe that no time was un- 
necessarily wasted by those interested in this discovery ; and at 
the earliest practicable moment afterwards agents of nearly 
every important American house engaged in the importation of 
metals — Barclay & Livingston, Boorman, Johnson, & Co., Hoff- 
man, Bend, & Co., Phelps & Peck, William Wright & Co., and 
many lesser firms — were ransacking the markets of Europe for 
the purchase and shipment to the United States of old lead. Of 
course, the legitimate market supplies, never great, of this pecu- 
liar article soon gave out, but the agents and correspondents of 
the American houses being Yankees, proved fully equal to the 
emergency, and a scheme was forthwith devised to replenish the 

though on a smaller scale, have in like manner followed the discovery in the United 
States of rich mines of bichromate of iron (from which chromate of potash, and yellow 
and green paints are made) and of nickel ; and would also undoubtedly have been the 
case with tin, had this metal been discovered in former years. For when, about the year 
1870, enormous deposits of tin were reported to have been found in the Ozarck Moun- 
tains of Missouri, attempts were at once made, on the mere basis of report, to remove 
tin as an importation from the free list, and make it subject to a duty ; and the effort 
was only abandoned when it was ascertained that what was supposed to be tin, was 
something else, and of no value. 



THE TRUE STORY OF THE LEADEN STATUARY. 2$ 

stock by exchanging new lead for old, and contracts in more than 
one instance, for example, were actually entered into and carried 
out for stripping from extensive factories in different parts of 
England their old lead roofing — lead being then used more exten- 
sively than now in the place of slate — and replacing it without 
expense to the owners with new roofing on condition of receiving 
the old material. 

In the course of time the old lead thus collected began to 
make its appearance on this side of the Atlantic, and arriving in 
large quantities — almost by the ship-load — at the ports of New 
York and Boston, naturally attracted the attention of the custom- 
house authorities, who at first demurred to its entry at the low 
duty of 15 per cent, ad valorem. The matter, however, being 
referred to the Treasury Department at Washington, an answer 
soon came back that the position of the merchants was unim- 
peachable, but the Department would have the law amended as 
soon as possible. 

But the merchants by this time, in studying up the fiscal 
legislation of Congress in respect to lead in pigs and old lead, had 
made another discovery — and that was that the tariff act in force 
was mandatory to this further effect, namely, that if any person 
or persons should import musket balls or leaden bullets into the 
United States they should pay to the customs authorities a duty 
on the same of 15 per cent, ad valorem, and, in default thereof, 
the goods should be forfeited and the importers be punished. 
Like good citizens, therefore, the merchants made haste to obey 
the law, and their agents in Europe being duly instructed, lost no 
time in buying up all the musket balls and leaden bullets they 
could find for sale, and when the foreign markets were exhausted 
they had musket balls of the regulation weight and calibre largely 
manufactured, and all were duly shipped as fast as possible to the 
United States. Again the custom-house authorities objected, but 
again came back the response from Washington that the law was 
explicit in respect to the 15-per-cent. duty, and that nothing could 
be done in the way of restraining the importation of leaden 
bullets in place of pig lead until Congress had provided further 
legislation on the subject. 

But the tariff acts in force from 1828 to 1832 were, however, 
almost as much a mystery and a muddle of perplexity as are the 



26 PRACTICAL ECONOMICS. 

acts under which the customs are at present administered, and it 
was only after continuous study and investigation that their full 
depth of meaning and of wisdom could become evident. But the 
success attending the import of old lead and musket balls had 
been so remarkable, and the preservation and resuscitation of the 
" white lead " business so encouraging, that the merchants were 
stimulated to further fiscal investigations ; and again putting on 
their spectacles, they discovered two other remarkable provisions 
of the then existing tariff which heretofore had not been consid- 
ered of much importance. These provisions related, the one to 
" leaden weights " of all descriptions, and the other to " sounding 
leads," and were to the effect that if any person imported any of 
these articles into the United States he should pay on the same a 
duty of fifteen per cent, ad valorem. 

It seems almost unnecessary to relate in detail the consequence 
of these discoveries, but it sufificeth to say that those were the 
good old days when false standards were far more of an abomina- 
tion than they now are, and it was astonishing how great a de- 
mand all at once appeared to have been created in the United 
States for full, fresh, and new sets of leaden weights (from half an 
ounce to fifty-six pounds and upward, but notably of the heavier 
denominations), which had not had their accuracy impaired by 
continuous use and abrasion. If the exact truth, moreover, could 
now be known, it might also appear that many persons at that 
time (especially in the cities of New York and Boston) had some- 
how become indoctrinated with the idea that the possession of 
more " weights " would in some way increase the quantity of 
things to be weighed — in the same way as the progressive men of 
the present day have brought themselves to believe that the pos- 
session of more paper money will increase the value and quantity 
of the things that this same money can buy. Those were the days, 
also, when clocks were high and stood in corners rather than upon 
mantels, and were moved by weights rather than by springs, and 
our ancestors of forty years ago — and none knew better than they 
that " time is money " — all at once seemed possessed with the de- 
sire to have more clocks, for the import of heavy leaden clock- 
weights, with iron hooks neatly fitted to one end, and which 
prima facie could be only used for the manufacture of clocks, all 
at once increased and rapidly became a business of magnitude. 



THE TRUE STORY OF THE LEADEN STATUARY. 2/ 

Navigators also about this time, it might be inferred, became 
more intelhgent ; or, if not more inteUigent, then, through a de- 
sire to save their insurance premiums, more cautious ; or, if not 
these, then the desire of American geographical students to study 
more accurately the sea bottom, might have been abnormally 
stimulated ; for in what other way could an excessive and unusual 
import of deep-sea sounding leads be accounted for ? — leads 
small, leads large, leads of two ounces weight, leads of seventy 
pounds weight, leads a few inches in length up to leads two feet in 
length — all with an eyelet at one end for the sounding line attach- 
ment and a cavity at the other for the reception of the tallow, by 
the agency of which specimens were to be brought up from the 
sea bottom. 

But the custom-house authorities were practical men. They 
indulged in no philosophical reflections as to any abstract possible 
uses of the imported articles in question. They saw in all of them 
lead and lead only — and on lead, in the interests of the Galena 
mines and of the revenue, they wanted a duty of three cents per 
pound. They accordingly, as opportunity offered, seized and re- 
fused to deliver the exceptionally large invoices of " clock 
weights," ''scale weights," and " sounding leads," and the appeal, 
as usual, from their proceedings went up from the merchants to 
Washington. But if the custom-house ofificials were practical 
men, the Treasury magnates at the capital, on the other hand, 
were strict constructionists, and as they found the statute written 
so they interpreted it ; and in all cases the arrested importations 
of the merchants were, after a little delay, restored and admitted 
to entry ; and in at least one case, where three cents per pound 
had been paid under protest on the above-mentioned leaden 
articles, the difference between that sum and fifteen percent, was 
returned to the merchant by the Treasury. In fact, as " sea 
stores " of all descriptions were then on the free list, "sounding 
leads " might have been claimed to be exempt from all imposts ; 
but the merchants were generous, and this question does not 
appear to have been raised. 

It is not to be denied, nevertheless, that by this time lead had 
got to be a very irritating topic to a Federal official ; and indeed 
it was only necessary to say " lead " to a United States district 
attorney, a collector, or revenue inspector, to seriously disturb his 



28 PRACTICAL ECONOMICS. 

mental equanimity. An opportunity to retaliate upon their mer- 
cantile tormentors was therefore earnestly sought for, and before 
long such an opportunity seemed to present itself. A prominent 
New York house in the metal trade, which, in connection with 
some half dozen or more leading firms, had been engaged in im- 
porting old lead, musket bullets, sounding leads, clock weights, 
and the like, and passing them, under a strict but legal construc- 
tion of the statute, at fifteen per cent, ad valorem, imported on 
one occasion, during the period under consideration, but subse- 
quent to the events narrated, an invoice of stereotype metal. 
Now, stereotype metal was then on the free list of the tariff, and 
subject to no duty, and in this particular instance the importa- 
tion had been made in consequence of a direct order received 
from one of the largest type founders in New York ; but as it 
came in pigs or bars, was in unusual quantity, and consisted 
merely of lead mixed with comparatively small proportions of 
antimony and bismuth, the custom-house officials conceived the 
idea that it was only a new device of the enemy to take advan- 
tage of the faulty statute, and that the ultimate intent was to re- 
melt the stereotype metal, separate its several constituents, and 
then dispose of the lead independently. The whole invoice was 
accordingly seized, and suit commenced in the United States 
District Court for its forfeiture, the government having previously 
ascertained, by means of an analysis of a sample bar, made at their 
request by the then famous New York chemist, old Dr. Chilton, 
that the metal contained somewhat more than eighty per cent, of 
lead. The District Attorney at that time was Price, afterward 
best known for some financial irregularities. The merchants, of 
course, resisted, and on the day of trial appeared in court with 
the type founder on whose account the metal was ordered, and 
other experts to prove that the import and prospective use of the 
metal were entirely legitimate. The government opened their 
case by stating their assumption that the metal was not imported 
for the manufacture of stereotypes, but for the purpose of de- 
frauding the revenue, and, calling as their first witness Dr. Chil- 
ton, examined him somewhat as follows : 

District Attorney — What is your profession ? Dr. Chilton — A 
chemist. 

O. Where were you educated ? A. In Edinburgh, and have 
followed for many years my profession in New York. 



THE TRUE STORY OF THE LEADEN STATUARY. 



29 



Q. Have you made an analysis of this imported metal [at the 
same time referring to one of the bars included in the invoice] ? 
A. I have. 

O. Of what does it consist ? A. Of some eighty per cent, of 
lead ; the remainder, antimony, bismuth, and tin. 

Q. Is it possible to separate these several constituents, as 
thus mixed, so as to use and sell them separately ? A. Per- 
fectly so. 

Q. Please tell the Court what, in your opinion, would be 
about the expense of the operation. A. Rather more than all 
the materials are worth. 

There was silence for a few moments. The District Attorney 
did not seem to be possessed of a further inquiring spirit. It was 
a warm summer's day, and the Judge (Betts), after mopping his 
face with his handkerchief, stretched his head forward, and, some- 
what brusquely, asked if Mr. Price had any rebutting testimony, 
and, on receiving a negative reply, fell back in his chair with the 
remark : " Then the case had better be dismissed." And dis- 
missed it was. 

But the troubles of the custom-house officials were not yet 
ended ; and here comes in that portion of this curious series of 
events which is best known to the public, is the most comi- 
cal, and which, as has already been remarked, is often referred to 
in Congressional debates, when topics of the tariff, smuggling, or 
under valuations are under consideration. 

The wicked merchants, encouraged by their complete success 
as law interpreters, had continued their tariff investigations, and 
had further found among its provisions in force one to the effect 
that " metal statuary and busts " might be imported free of duty. 
It was thereupon immediately determined by the merchants that 
if the American people desired to cultivate their taste, or keep 
alive the memory of the good and great of former days by adorn- 
ing their houses and grounds with metal statuary, they ought to 
have the opportunity of so doing ; and, accordingly, large orders 
were sent to Europe — at that time the exclusive seat of high art 
— for the manufacture of busts — mainly colossal — of Washington 
Lafayette, Napoleon, Moses, and the prophets, and not forgetting, 
also, duplicates or reproductions of the great works of antiquity; 
and as lead, of all the metals, seemed to possess in the highest de- 



30 PRACTICAL ECONOMICS. 

gree the qualities of durability, tenacity, cheapness, and facility of 
being moulded, the statuary in question was directed to be made 
of lead. It should also be remarked in this connection that lead 
statuary fifty years ago was not the abnormal exceptional thing it 
now is. In fact it Avas then the common material for cheap 
imagery throughout Europe, when something less expensive than 
bronze or marble was desired, and filled the place which is now 
supplied by cast iron and zinc, but which materials fifty years ago 
were not thought susceptible of ornamental adaptation. And 
that the lead statuary in question was really ornamental is proved 
by the circumstance that some of it thus imported is yet in use 
for ornamental purposes, one piece embellishing, as recently as 
1874, the garden of an eminent banker in New York. From such 
an aesthetic point of view, also, did the prosaic custom-house ofB- 
cers regard the first importations of these leaden images, and so 
might they long have continued to regard them, had the persons in 
Europe intrusted with their shipment been more careful in respect 
of packing. But when Washington came up out of the hold of the 
vessel after a rough voyage with his nose punched in, and Napo- 
leon with his eyes sufificiently askew to require an operation for 
strabismus, and Moses looking very much like a subject on whom 
the law ought to be administered rather than an author and ad- 
ministrator of the law, suspicion was naturally excited, and forth- 
with the statuary M^as seized and held for forfeiture by the customs 
authorities. In answer, the importers, as before, pointed to the 
clear and explicit provision of the tariff then in force — " Metal 
statuary and busts free " — and urged the government, if they 
doubted, to institute a suit. But Mr. Price, the district attorney, 
had once burned his fingers with cold lead, and persistently re- 
fused to bring the matter into court. Thereupon one of New 
York's then best-known merchants and publicists, caused an in- 
voice of the questionable statuary to be imported into Boston, 
and arranged with the district attorney of that port to try the 
issue in respect to its dutiable character. When the trial came 
on Daniel Webster appeared as counsel for the defence. His 
speech in answer to government was very brief but to the point, 
claiming the law provided for the admission of metal statuary, 
busts, etc., free, with no limit as to the kind or quantity, and that 
the imports in question were metal statuary, though made of lead. 



THE TRUE STORY OF THE LEADEN STATUARY. 3 1 

When the case closed Mr. Webster requested the judge to charge 
the jury that they were to decide whether the articles were metal 
statuary, and if they found that they were, they must bring in a 
verdict for the defendants. The judge substantially did as re- 
quested, and the jury, in a few minutes after retiring, returned 
with a verdict for Mr. Leavitt. 

The decision in this case practically put an end to the whole 
controversy. The lead statuary under seizure was released, the 
import was allowed to go on unrestricted, and, as soon as circum- 
stances permitted, Congress amended the tariff by equalizing the 
duties on all forms of lead, and at the same time satisfied the 
white-lead manufacturing interest by fully protecting their prod- 
ucts from foreign competition. 

As this curious story has been heretofore told, the importation 
of the leaden statuary has been popularly attributed to the agency 
of the former well-known New York firm of Phelps, Dodge, & Co. 
This is, however, an error. The firm of Phelps, Dodge, & Co, was 
not, at the time of the occurrence of these events, in existence ; and 
the old firm that preceded them — namely, that of Phelps & Peck, 
— although large importers of metals, were not concerned in this 
matter of the leaden images. 

It would be a mistake, furthermore, to infer that like muddles 
and perplexities cease to characterize the tariff when Congress, 
taught by experience, successively remedied the omissions and 
commissions of the act of 1828. On the contrary, there has been 
hardly a tariff enacted since that time which has not the absurdi- 
ties of the old lead, the musket balls, the clock weights, the deep- 
sea leads, and the leaden images in some form repeated. Thus, 
for example, in the tariff of 1846 a duty was imposed on flaxseed 
of twenty per cent., but in the tariff of 1857 linseed was made 
free, while flaxseed was charged fifteen per cent. duty. As might 
have been expected, the import of linseed was always large, but 
that of flaxseed very small. 

When the manufacture of cloth-covered buttons began to be 
established in New England, one great obstacle in the way of 
producing an article sufficiently cheap and sufficiently nice to 
attract and build up a domestic demand, which had hitherto been 
mainly supplied by imported buttons of wood, metal, or bone, 
was the difficulty of obtaining at reasonable cost the essential 



32 PRACTICAL ECONOMICS. 

varieties of cloth ; the fabrics of wool and silk most suitable for 
covering "button-moulds," or frames, being almost exclusively of 
foreign manufacture, and subject on importation to such extreme 
rates of duty as to make their use exceedingly costly. Rags, 
however, could be imported free of duty ; and the shrewd Yankee 
manufacturer took advantage of the situation by having his 
foreign-made "button cloths" technically reduced to rags, by 
cutting them up into small pieces, or by systematically perforating 
the goods in the piece with holes previous to importation, a pro- 
cess which did not impair the value of the cloth for use as button- 
covers, and really only anticipated one step in the process of 
manufacturing. It is hardly necessary to say that the profits on 
the device, so long as it was not interfered with by the officials, 
were extraordinarily large, and constituted the foundation of a 
large fortune; which, in part at least, was subsequently devoted 
to the education of missionaries for the work of Christianizing 
the heathen of other countries. 

Again, in 1864, the manufacturers of spool thread, anxious to 
shield themselves against all foreign competition, obtained a pro- 
hibitory duty on the import of unwound cotton thread or yarn. 
When the law went into effect it was found that the result of the 
new duty would be the destruction of the manufacture of fine 
elastic fabrics, suspenders, gaiters, etc., as well as of certain 
worsted fabrics, which were dependent on Europe for certain 
qualities of warp yarns not then manufactured on this side of the 
Atlantic. The difficulty was, however, got over by an absurd 
Treasury ruling, that cotton warp or yarn intended for use in the 
manufacture of elastic worsted or woollen fabrics was not un- 
wound thread or yarn, but a manufacture of cotton " not other- 
wise provided for." 

And, coming down still later, Congress, in 1872, enacted a 
general reduction of ten per cent, in tariff rates on metals and 
manufactures of metals — watches and jewelry excepted. It was 
clear, however, that " watch cases " are not " watches," and 
neither are springs, escapements, wheels, etc., etc., considered 
separately. The course of trade, therefore, in respect to imported 
watches, soon adjusted itself as follows : The movements taken 
out of the cases, packed in separate cartons, but carefully num- 
bered, were, when thus imported, clearly manufactures of metals, 



THE TRUE STORY OF THE LEADEN STATUARY. 33 

and as such entitled to the rebate of ten per cent. In like manner 
the cases, without the essentials of a watch in them, were also 
held to be nothing but manufactures of metal (gold and silver), 
and so treated in respect of duty. Watches, of course, when they 
come in as watches, pay full duty ! ! ! 

Thus the old, old story of the effect of impolitic and absurd 
restrictions on trade and commerce, the lesson of which Europe 
through centuries of experience learned and profited by, con- 
tinues to repeat itself in the fiscal policy of the United States. 
Let us hope that the result here, too, at no distant day will be 
what it has been elsewhere — namely, to force men to the conclu- 
sion that the best system of taxation is to tax but a few things, 
and then leave those taxes to diffuse, and adjust, and apportion 
themselves by the inflexible laws of trade and political economy 
— and, furthermore, to recognize that no system of government 
has any just claim to the title of free, which arbitrarily takes from 
its citizens any portion of their property for any purpose other 
than to defray the necessary expenditures of the State. 



THE SILVER QUESTION. 



THE DOLLAR OF THE FATHERS VCrsus THE DOLLAR OF THE SONS. 

The substance of this essay appeared originally in the columns of the Cincinnati 
Commercial, July 2, 1877, in the form of a letter addressed to the editor, Murat Hal- 
stead, Esq. The motive that mainly prompted its writing, was a desire to set forth 
the inconsistency and absurdity of the attempt to win popular support for unlimited 
silver coinage, and its enforced circulation as currency through the invention and use of 
the term " The Dollar of the Fathers" and inferentially claiming thereby, that because 
in the old days of low prices and limited cash transactions the cumbersome and bulky 
silver dollar had suited the requirements of the fathers, it should, therefore, be venera- 
ted and used by their sons, notwithstanding the changes in the methods and mechanism 
of business, consequent on a higher civilization, clearly demanded something radi- 
cally different and better. A continued demand for the essay in a more permanent 
and readable shape, and the continued interest on the part of the public in Europe as 
well as in the United States, in the question of the future use of silver as a material for 
coinage, subsequently induced its republication, with additions, in a pamphlet form ; 
but the edition of this last soon passed out of print. 

WHY THE CHINESE DO NOT COIN THE PRECIOUS METALS. 

IN China the Government long ago ceased to coin the pre- 
cious metals or regulate " the value thereof." Gold in China 
is not money. Silver is money ; but neither are coined. Both are 
merchandise, and pass by weight and fineness. But although the 
Chinese Government has abandoned the coinage and regulation 
of the value of the precious metals, it has not absolutely and 
entirely abandoned all coinage. 

It provides one coin, and one only, for the use of its people, 
namely, an ugly, coarse, and comparatively heavy disk, composed 
mainly of iron, with a little copper; cast, and not stamped, and 
bearing some rude characters, letters, or signs upon its surfaces. 
This coin, which is known among foreigners by the name of cash, 
has a value of about one mill, American money, and is made with 

34 



THE SILVER QUESTION. 35 

a hole in the centre for convenience of stringing in tens and its 
decimal multiples. It occasionally drifts into the regions of 
Western civilization, and doubtless often suggests the inquiry, 
" How can any people use a coin so heavy and of such trifling 
value to any advantage in making their exchanges?" The 
answer is a very simple one. The wages of manual labor in 
China do not in general exceed fifteen or twenty cents per day 
(our money) ; and these wages serve for the support and tolerable 
comfort of the great mass of the people, because, in part by reason 
of the great stability of values, but mainly because of the fact 
that labor itself is the real standard of value, to which the prices 
of all the products of labor adjust themselves; so that in China, 
upon apparently small wages, a man may live as well as in other 
countries upon nominally larger w^ages. But whatever may be 
the wages of a day in any country, they must be capable of 
division into many parts, in order to be exchanged for the many 
necessities of an individual or a family. In most countries this 
division is effected by the use of coined (metallic) money. 
But with wages at twenty cents per day, the use of coined gold 
would obviously be impracticable. The equivalent of a day's 
labor in gold would be too small to be handled conveniently ; the 
equivalent of an hour's labor in gold would be no bigger than a 
pin's head. And in a smaller degree would be also the incon- 
venience of using coined silver for effecting the division of wages 
ruling at the rate of 15 to 20 cents per day. A quarter day's 
wages would be represented by a silver coin not so large as our 
5-cent piece ; and an hour's wages, which in turn might buy a 
pound of rice, and perchance a chopstick to eat it with, by a piece 
of silver no larger in circumference than the flat surface of a small 
split pea. Therefore the Chinese intelligently discard the use of 
coined gold and silver, and in their place have substituted the 
bulky and cheap, but at the same time admirable, because well 
adapted and useful, cash, which sustains the same relations to their 
low nominal wages and prices that gold and silver coin sustains to 
the nominally high wages and prices of other countries ; 200 
pieces of cash dividing a day's wages of 20 cents into 200 equal parts 
for convenience in exchange for commodities and for the pay- 
ment of taxes, estimated by a correspondingly low standard. 
Now all this comprises a lesson of experience, which those in- 



36 PRACTICAL ECONOMICS. 

terested in the question to what extent can or shall silver be made 
the circulating medium, and an instrumentality of exchange in 
the United States, may do well to consider. That it is possible 
also to debase and over-issue a currency or circulating media 
of as low a type and of as small absolute value as the Chinese 
"cash," and that the resulting consequences of such "debase- 
ment " and "over-issue " will be precisely the same in character 
and influence, as when entailed upon a currency representing 
larger specific exchanges and greater specific values, is shown by 
the following curious story of Chinese experience, which has 
been told to the writer by an American merchant, resident in 
China at the time of its occurrence, and who was not only per- 
sonally cognizant of the facts but also an eye-witness of some of 
the involved transactions. 

Shortly after the termination of the first Anglo-Chinese war 
(1838), the authorities of Pekin delegated the government of the 
great city of Foo Chow — one of the five commercial ports — to a 
mandarin of great reputation and learning, who, though invested 
with despotic power, governed on the whole so well that the 
people regarded him in the light of a father, and in his visits to 
the city, from his ofificial residence outside the walls, were accus- 
tomed to receive him with the utmost respect and deference — 
standing in front of their houses, arrayed in their best garments, 
making low obeisances as he passed, and crowning him and his 
retinue with garlands of flowers. But, after a time, the love of 
gain taking possession of the ruler, he sought to gratify it by 
secretly withdrawing the " cash " in current circulation, having a 
market value as metal of about a tenth of a cent, and re-issuing 
the same in larger quantity and of lighter weight, and placing the 
difference in value in his pocket as private property. The first 
thing the shop-keepers, the market-men, and the laborers knew 
about it was, that they all at once found themselves rather abun- 
dantly supplied with "cash " currency. The abundance did not, 
however, at first disturb them, because legitimate Chinese cash, 
like all other true money, flows where it is most wanted, and so 
finds its level. But in this case, the quality being inferior, the 
natural and legitimate " flow " was checked, the "cash" accumu- 
lated, and its value rapidly declined, so that at first 12, then 14, 15, 
and, finally, 16 cash were required to purchase what formerly could 



THE SILVER QUESTION. 37 

have been obtained for 10, — in the same way as the purchasing 
power of our " greenbacks " decHned during the war in proportion 
to the abundance of their issue. 

The people saw this, knew the cause of the depreciation and 
who was responsible, and proceeded to execute justice after the 
Chinese fashion ; for, when on a certain day the mandarin visited 
the city, as by previous notice, the people in unusual numbers 
turned out to meet him ; but not this time with flowers and 
obeisance, but with strings of the debased money, which they 
threw at him and his retinue ; and also so beat them with it, that 
while some were killed, the ruler barely escaped with his life. 
Returning, however, to his palace without the city, he imme- 
diately despatched a courier to Pekin, informing the Government 
that an insurrection had broken out, and demanding troops to 
seize and punish the offenders. But the Government was not 
much alarmed ; it is used to this method of impeachment by the 
people, it knew there was something wrong, made no haste to 
send force, but decided to wait for further information ; and in 
about three weeks the people's courier, travelling by slower 
methods, arrived and communicated the other side of the story. 
Thereupon an investigation was made, and the statement of the 
people having been found correct, the mandarin was deposed and 
ordered to Pekin, where he was publicly informed that, having 
sinned in the highest degree, inasmuch as he had abused his 
official power and trust to wrong and defraud the people, there 
was no longer any fit place for him among the living ; but that, 
in recognition of his former services, he would be permitted to 
effect his own departure rather than put the state to any trouble 
— an intimation which, there is every reason to believe, was 
speedily complied with. 

PRICES, WAGES, AND CUSTOMS IN 1792. 

In 1792 (when the dollar of the fathers was first established), 
the average price of the ordinary labor of adult males was not in 
excess of 40 and 45 cents per day. [The pay of soldiers in the 
army was $4 per month, and one ration per day of the value of 12 
cents. The military storekeeper at Springfield, Mass., received 
per month ; artificers and armorers at posts on the frontier, 

per month ; United States District Judges, $1,000 per annum ; 



38 PRACTICAL ECONOMICS. 

messengers in the Government offices, $150 per annum.] The 
prices of all commodities, conforming then as now to the prices of 
labor, were also correspondingly small, while cash transactions 
were exceedingly limited. The fathers, moreover, were a stay-at- 
home people, and made but few journeys, or journeys of any con- 
siderable distance. Under such circumstances, the gravity of 
silver was a matter of very little consequence, and a bulky, cum- 
bersome coinage (the dollar of the fathers) was not then an incon- 
venient instrumentality for making exchanges, and for the same 
reason that the heavy cheap Chinese cash is not an inconvenient 
instrumentality for making the present retail Chinese exchanges. 
The present conditions of affairs, comparing 1885 with 1790, or 
with even 1840, a period of fifty years later, is, however, entirely 
different. The prices of labor and of its products have greatly 
advanced. [The pay of soldiers in the army is $13 per month, 
and one ration. The military storekeeper at Springfied, Mass., re- 
ceives $200 per month; armorers, from $1.75 to $3.50 per day; 
United States District Judges, $4,000 per annum ; messengers in 
Government offices, $750 to $1,000 per annum.] Now everybody 
travels. Comparatively, and probably absolutely, more people go 
every year from the Atlantic to the Pacific, and vice versa, than 
fifty years ago went from State to State. Negroes now travel in 
the Southern country ten times as much probably as did all the 
people in that section before the Revolution. Now cash transac- 
tions are numerous and often very extensive. Everybody carries 
more or less money in his pocket, and it is far from unusual for in- 
dividuals to carry habitually as much as $100 on their persons. 
No one would think of starting upon any considerable journey 
with any less sum of money at his immediate command. Under 
such circumstances the weight or "tonnage " of silver becomes an 
element the importance of which has thus far been overlooked in 
considering the extent to which this metal can in future be used 
as currency. 

THE WEIGHT OF SILVER. 

Eighteen dollars and fourteen cents, represented by the pres- 
ent subsidiary silver coinage of the United States, weigh a pound ; 
one hundred dollars weigh five and a half pounds, and for every 
thousand dollars that a man is paid in silver, a wheelbarrow would 
become necessary if he proposed to remove it. The wheelbarrow, 



THE SILVER QUESTION. 



39 



in fact, will become the essential, and possibly the fashionable, 
portemonnaie for all who propose to engage in any considerable 
moneyed transactions, if the dollar of the fathers is to be made by 
law the principal circulating medium. If a business was extensive, 
and it became desirable to pay at once $300,000 (in the dollar of 
the fathers), then the wheelbarrow would have to be discarded, 
and the railroad car called into requisition/ And if silver is to 
be made the basis of banking it is well to consider that there is 
not probably a bank vault in the country that can hold and sus- 
tain a single million of coined silver weighing more than twenty- 
five tons. If silver is to become our practical single standard, a 
new style of bank architecture must be adopted. 



RELATION OF NATURAL LAWS AND NATIONAL NECESSITIES TO THE 

SILVER DOLLAR. 

While silver, therefore, is not an inconvenient coin in coun- 
tries of low prices and limited internal exchanges, and however it 
may once have favorably answered to conditions in the United 
States, our present condition of affairs — our high nominal wages 
and prices, and the necessity that exists for the carrying of com- 
paratively large sums of money upon the person — would obviously 
seem to preclude the possibility of its use for the bulk of even the 
retail business of the country. And if by law silver should now 
be made the exclusive standard for money values in the United 
States, no law could enforce its use for general circulation. Sub- 
stitutes of paper money would be resorted to and speedily re- 
place it. 

Again, if it is proposed to do business with all the world on 
terms of equality — and the great trouble with us as a nation to- 

I The following table, prepared for the writer by Mr. E. B. Elliott of the United 
States Treasury Department, represents the weights in pounds avoirdupois of various 
sums of United States Silver coinage : 

Weight in pounds, 
avoirdupois. 

5-51 

55-12 

551.16 



Number 

of dollars. 

100 

1,000 

10,000 

30,000 

50,000 

100,000 

300,000 



1,653-47 

2,755-78 

5,511-55 

16,534.66 



40 



PRACTICAL ECONOMICS. 



day is, that by reason of various circumstances we are not so able, 
and, therefore, cannot dispose of the excess of our commodities — 
we must make use of those instrumentaHties of trade of every 
kind (ships, engines, railways, and more especially the money) 
which the commercial world has adopted. Now the money of 
the commercial world, of all international trade, is mainly gold ; 
and the United States has little commerce with any country 
which uses a silver standard. To some this may appear as 
a matter of very little importance ; but this opinion will not long 
be entertained if it is remembered that so sharp is the competi- 
tion of various countries for trade, and so completely have the 
barriers of space and time been broken down by the steamship, 
the railroad, and the telegraph, that the question as to who shall 
take the lead in supplying the world with certain great commodi- 
ties is going to turn in the future, not on cents, but on fractions of 
cents, per yard, pound, or bushel ; and that the opportunity for 
employment and for the earning of a comfortable livelihood may be 
denied to thousands by the apparently trifling fluctuations in the 
purchasing power or the inconvenience of the money which the 
country may use in making its exchanges. 

And if the American laborer — if the masses of our people 
now seeking employment, and painfully realizing that in the 
midst of abundance the nation cannot market its abundance, and 
because it cannot market it, production stops and poverty in- 
creases — could also realize how much of all this trouble is con- 
nected with the attempt to make the United States adopt and 
use forms of money, or media of exchange, which our own experi- 
ence and the experience of other nations teaches we should not 
use, the advocacy of any thing but most stable, non-fluctuating, 
and commercially valuable currency would be any thing but 
popular. 

As a condition of national defence, furthermore, — to enable 
the nation to carry on a future war, foreign or domestic, offensive 
or defensive — a full supply of the most valuable coin that is pur- 
chasable and salable without discount in other countries (and so 
available for settling international balances) is more necessary 
than a full supply of arms, ships, or forts. And the safest de- 
positories of such coin are not the vaults of banks or of the Federal 
Treasury, but the pockets of the people ; and the conveniences of the 



THE SILVER QUESTION. 4 1 

people would prompt them to employ more coin, and so keep up 
a greater supply of the essential munition of war, if gold was the 
standard, than if the standard was exclusively a commodity so 
cumbersome as silver. 

But the remonetization of silver, or the proposed restoration 
of the " dollar of the fathers," if silver continues depreciated, 
would be equivalent to abolishing the use of coin to any large 
extent as a circulating medium ; or, in other words, natural laws 
have ordained that the use of silver, in any highly prosperous 
commercial community, shall be limited to its use as a subsidiary 
token coinage ; while sound policy and the dictates of national 
interest require that it shall not be made legal tender except as a 
token of currency for small amounts. 

REMONETIZATION OF SILVER A QUESTION OF NATIONAL CONVENIENCE. 

Remonetization of silver is, therefore, a question of conven- 
ience, of tonnage, of gravity, and cost of transportation. The 
kind of coin a country should have and use must depend upon 
the value of its transactions, the prices of its labor, and the 
rapidity and magnitude of its exchanges. Iron was not ill 
adapted to Sparta as a metal for coinage. It would not, how- 
ever, suit Chicago ; and everybody in Chicago and elsewhere who 
will take the trouble to understand why it would not suit, 
will at the same time see that it is not the dollar of the Spartan 
daddy or of the fathers that we want, but the dollar of the Yankee 
sons that the country requires ; and that it ultimately must and 
will have, if it proposes to prosper. 

THE FALLACY OF A CHEAP CURRENCY. 

But the advocates of the remonetization and extended use of 
silver as currency plant themselves on what they regard as a 
fundamental axiomatic principle — namely, that it is necessary 
and desirable to have a cheap currency. But, as a matter of fact, 
no commodity currency (gold, silver, copper, iron, or cabbage) of 
one kind can be relatively cheaper than one of another kind. 
The value of each (if not a token currency, and minting is free) 
will depend upon the amount of labor embodied in or that will 
be required to purchase it : and no legislation can give to it any 
other value. If a gold dollar cost on an average one day's labor, 



42 PRACTICAL ECONOMICS. 

and a silver dollar nine tenths of a day's labor, a dollar and ten 
cents of nominal silver will sell for the same price as a dollar in 
gold. Whatever nominal value, therefore, legislation may give 
to gold or silver, it will have no influence on the price of any com- 
modity in the open (or world's) market. Neither gold nor silver 
can be made^^?/ money as to future transactions; and the amount 
of labor expended in their production will establish their final and 
permanent value. If this value should fail to be recognized for 
a time, labor will go into other channels, and the production of 
these metals will cease until their labor value is again recognized. 

NO NATIONAL ECONOMY IN RESTORING THE DOLLAR OF THE FATHERS. 

As these truths are, however, persistently ignored by the 
majority of those who have undertaken to agitate for a renewed 
use of the dollar of the fathers, and as the force of the argument 
against the use of silver by reason of its cumbersomeness may be 
attempted to be met by assuming that it is proposed to use silver 
as a basis for the issue of a (paper) circulating medium, and not 
as a medium directly, it is desirable to still further elucidate this 
subject by illustration. 

Thus, if it requires $500,000,000 to supply an exclusively gold 
currency for this country, and silver is depreciated ten per cent, 
in comparison with gold, it will require $550,000,000 in silver to 
perform the same work ; and it will require the same amount of 
commodities or embodied labor to buy the exclusively gold cur- 
rency that it will to buy the exclusively silver currency. What- 
ever may be the dollar or the unit of coin adopted by any country, 
it will have no effect on future transactions, for prices will adapt 
themselves to the amount of labor embodied in the new coin, 
whether it be of great or small value, nominal or real. No one 
will be deceived by a mere nominal dollar. If it represents less 
embodied labor than the real dollar, it will depreciate just in pro- 
portion to the difference in the amount of labor embodied in the 
real and in nominal coin, and prices of every kind will advance just in 
proportion to the depreciation of the coin unit that is used.' If the 

' The volume of the French assignate (the irredeemable paper of the French rev- 
olutionary period) is said to have at one time reached the extent of 45,000,000,000 
francs, or $9,000,000,000 ; and the prices of services and commodities so adjusted 
themselves to this condition of fiscal affairs, that 6.000 livres (about iSj cents each) 
was the usual fare for a ride in an ordinary hackney coach. 



THE SILVER QUESTION. 43 

gold dollar should be made to contain double the amount of pure 
gold contained in the present dollar, prices, measured in dollars, 
would immediately depreciate one half, and it would require only 
a mental operation to reduce the prices of commodities to the 
new standard. On the other hand, if a depreciated silver dollar 
currency should be adopted, it would only require a like mental 
effort on the part of the seller of property to advance his 
prices in proportion to the depreciation of the new coin, and no 
one would be deceived in either case. The aggregate nominal 
silver circulation would, however, be increased in proportion to 
the comparative depreciation of silver, and would cost in exchange 
for other products just the same amount as an aggregate gold 
circulation would cost. In other words, an exclusively aggregate 
gold currency can be bought as cheaply and with as little burden 
to the country as an exclusively aggregate silver currency, for 
they are both worth what they embody of labor — no more or any 
less on the average. 

When the Connecticut Yankees counterfeited the wampum 
which Peter Stuyvesant made currency in New Amsterdam, it 
continued to depreciate in value until it sold at a price which 
barely remunerated the counterfeiters for its manufacture and 
counterfeiting only ceased when the price, or exchangeable value, 
was reduced below the cost of its manufacture. If we permitted 
counterfeit notes to pass as legal tender, they would finally come 
down to represent the mere cost of the material of which they 
are composed, and of their manufacture, and would then become 
a commodity currency. 

From these considerations, therefore, it would seem clear that 
there is nothing to be gained as to future transactions by having 
the coin currency of the country composed of one or the other of 
the two metals — gold or silver, — except so far as one may have an 
advantage over the other in respect to convenience, adaptation to 
the business of the country — domestic and foreign, — portability, 
and the like; and on all these points the balance of advantage for 
all transactions above $20 (a sum weighing more than a pound in 
silver) is largely on the side of gold ; as will be evident when it is 
remembered that it requires sixteen times more time to count 
silver in any considerable quantity than it does to count a 
like value in gold ; sixteen times more strength to handle it ; 



44 PRACTICAL ECONOMICS. 

sixteen times more packages, casks, or capacity to hold it, and 
sixteen times more expense to transport it. In other words, in 
this saving age, to use silver for large transactions, in the place of 
gold, is a misapphcation and waste of fifteen sixteenths of a given 
unit of effort, time, expense, and capacity, when one sixteenth 
would accomplish the same result. 

SILVER INCONVENIENT BOTH FOR GENERAL CIRCULATION AND FOR 

BANK RESERVES. 

Whatever coin is held as a reserve, or basis for banking, must 
at times be counted and at times transported from bank to bank, 
from city to city, from State to State, and from nation to nation. 
Bank-notes must be redeemed somewhere and at some time, and 
if the redeeming coin is inconvenient for general circulation and 
inconvenient to handle, count, and transport, or to use as a bank 
reserve, its value as a redeeming coin will be diminished to the 
extent of all these inconveniences. The value of a redeeming 
currency consists largely in its adaptability to general circulation; 
but if the currency is bulky and ponderous, its value is diminished, 
because it is a constant menace to the creditor, who, at the arbi- 
trary will or caprice of the debtor, can be compelled to bring his 
wheelbarrow, cart, or freight-car, and receive the cumbersome 
coin. It may also be here pertinently asked. If silver is never to 
be counted, handled, weighed, or transported, why remove it from 
its native bed in the mines? 

THE RELATIVE VALUE OF GOLD AND SILVER DETERMINED BY NATURAL 
AND NOT ARTIFICIAL LAWS. 

One element of confusion that has been introduced in the 
recent discussions of the question of the use or disuse of silver as 
a material for currency has been the proposition soberly put forth, 
that the permanent and ultimate value of whatever is used as 
money depends on legislation; or, what is the same thing, that 
the value of a commodity can be established by law, and is not 
necessarily based upon the amount of labor employed in its pro- 
duction. But if all countries should demonetize both gold and 
silver, the market value of both metals must ultimately, by 
natural laws, be the same as now, when they are almost univer- 
sally recognized as money. Universal demonetization would at 



THE SILVER QUESTION. 45 

first produce a surplus of the precious metals in form of coin. 
Production would cease — that is, the mines would be closed — and 
the coin in existence would finally be absorbed in the arts and for 
ornaments. Loss and abrasion would, however, continue, and at 
length new demands for the arts would arise, which could only be 
supplied by a remuneration for labor sufificient to induce a re- 
opening of the mines, or what would be equal to the remuneration 
obtained by following other employments. When railroads re- 
placed stage-coaches, there was in some sections of the country 
for a period a surplus of coaches and horses. But natural laws in 
process of time restored the equilibrium, and now horses and 
coaches cannot be bought at any less prices, or even as cheap, as 
at the period when the displacement occurred. 

Authorities differ as to the cause of the present depreciation 
of silver. But the drift of opinion with political economists, and 
those who have made the subject a study, is that the present de- 
preciation is not permanent, but has been produced mainly by the 
action of certain of the governments of Europe demonetizing it, 
and forcing its sale as a commodity upon the world's market. 
From 1857 to 1873 (which latter year was the time when the Ger- 
man Government announced the demonetization of silver), the 
variations in the market price of bar-silver in the London market 
were between 60-^-^ and 6ii^ pence per standard ounce, or, in 
other words, during the whole of this period the silver dollar (of 
41 2|- grains) of the United States was worth more than its gold 
dollar ; and for a period of six years (1858-1864) it exceeded it in 
value by over four per cent. Since 1873 the decline in the value 
of silver has been rapid ; the fall being from 59^^ pence in 1873 to 
an average of 50.79 for 1883, and to 49I- in April, 1885, which is 
equivalent to a reduction in the value of the silver dollar in com- 
parison with gold, from 100.45 ii"^ 1873 to 85.57 in April, 1885. 
At present the annual production of silver is somewhat in excess 
of the annual product of gold ; the value of the world's production 
of the two metals (stated in dollars) for the year 1883, according 
to the estimate of Mr. Burchard, the Director of the Mint of the 
United States, having been $94,027,901 of gold, and $114,217,733 
of silver. From 1877 to 1883 inclusive, the aggregate world's 
production, according to the same authority, was, however, $743,- 
166,783 of gold, and $678,884,932 of silver. 



46 



PRACTICAL ECONOMICS. 



All the more productive silver mines are now producing a 
large percentage of gold in connection with silver ; and the im- 
proved machinery for working ores of silver are equally applicable 
to the working of ores containing gold, while one process, largely 
profitable for the working of gold — washing under hydraulic pres- 
sure — is not at all applicable to the working of silver. Of course 
it is not possible to foretell with certainty whether silver may not 
be hereafter produced more abundantly and with less labor than 
at present, or formerly, and less in proportion than is now re- 
quired for the production of gold. But be this as it may, the 
amount of labor expended in producing either metal in the future 
must, as in the past, regulate the relative value of each. If silver 
should cease to be a legal tender throughout the world, it would 
still continue to be used as money, until a substitute in the form 
of gold could be obtained. Silver-coin is a non-perishable article, 
and the amount of pure silver contained in such coin is well known. 
It would, therefore, continue to be used at the convenience of 
every community — at its market value in exchanges — until an 
ample supply of the metal made, legal tender in the form of coin, 
was obtained. Stage-coaches continue to be used after the 
introduction of railroads until the supply and service of rail- 
road cars are ample. The theory, therefore, that the demon- 
etization of silver will produce a sudden vacuum of metallic 
currency, or a demand for gold, more than sufficient to cause 
its production to the extent required, is chimerical and without 
foundation. 

THE GOLD STANDARD OF THE COMMERCIAL WORLD A NECESSITY FOR 

THIS COUNTRY. 

As already pointed out, the principal cause of the present de- 
preciation of silver has been the discarding and sale of its silver 
currency by Germany ; and as the great commercial nations of 
the world did not require this discarded silver, and would not 
purchase it for any purpose, depreciation has been the inevitable 
temporary result. The foreign commerce of the East Indies, to 
which countries this surplus of silver must ultimately be ex- 
ported, is limited ; and these sections of the world, however much 
they may want silver, cannot suddenly receive and pay for large 
quantities of it. They must pay for what they receive with their 



• THE SILVER QUESTION. 47 

exports, and these exports, with their hmited foreign commerce, 
cannot be suddenly increased. But at the same time it is not 
improbable that the East, after a while, will absorb all the 
present apparent surplus silver of the West, a result which the 
recent extension of the Russian dominion over Central Asia will 
undoubtedly accelerate ; for it is admitted that one result of 
such dominion has been to give security to life and property 
to large sections of country and to great numbers of people 
where such conditions did not formerly exist, and these, in 
turn, must result in great extension of production and exchange, 
and the consequent increased demand for and use of (silver) 
money. 

At present the East seems to require annually at least $50,- 
000,000 of silver'; for the years 1875-6, the exports from the 
West to the East exceeded $75,000,000. 

If now the United States should ally its destiny to a silver 
currency, and we should find at any time that we had an excess 
of silver, we should be in the present predicament of Germany — 
with no immediate purchaser or reservoir in the commercial 
world with which we have intimate relations to receive it.^ We 
should be not less embarrassed if for any reason we needed 
suddenly an increased amount of silver ; for then we should be 
obliged to draw it back through the same narrow and distant 
channels, requiring both time and expense. 

WHY GIVE TO OTHER NATIONS AN OPTION TO TAKE OUR GOLD AT 
LESS THAN ITS VALUE IN THE WORLD's MARKET ? 

Again, for the United States to now abandon the single and 
present exclusively gold standard, and adopt the bi-metallic 
standard (both metals being made legal tender in the form of 
coin), would amount to practically giving to all the world the 
privilege of taking all our gold at a nominal price in silver, or all 
our silver at a nominal price in gold. For arbitrarily fix what 
relations of value we will between gold and silver, there will 

' Mr. J. Hector, Deputy Secretary of the Bank of Bengal, has recently estimated 
that British India absorbed $820,000,000 of silver in the twenty years prior to June, 
1875, in excess of her exports of that metal. 

* This prediction, made when this essay was written in 1877, has since been abund- 
antly verified. 



48 PRACTICAL ECONOMICS. 

always be a liability to such changes in these relative values as to 
create an opportunity for a profit by interchanging the one for 
the other in the form of coin, the value of which has been 
arbitrarily established (temporarily) by law. Now, what object 
can the people of the United States have in giving to the rest 
of the world such an option, when none of the commercial 
countries with which we are on intimate commercial relations 
propose to extend to us any such privilege ? The creating of 
conditions whereby such an option can be given to foreign 
countries will unquestionably entail upon us as a nation great 
inconveniences in the future, as it has in the past. At times it 
may siphon out of the country so much of our entire circulation 
as may be silver and replace it by gold ; and at another time by 
the change of temporary market values, or changes in the legisla- 
tion of other countries, the gold may be siphoned out and the 
silver return. Any sudden influx of foreign coin — gold or silver 
— would not, however, be readily and at once practically available, 
as the people w^ould not at once willingly receive and admit the 
coins of foreign nations into general circulation. But as the 
capacity of our mints will be inadequate to meet these extraordi- 
nary demands that may arise, the necessities of the people may 
compel them to receive foreign coins for a time, whose value they 
are incapable of suddenly appreciating ; thereby producing end- 
less confusion and uncertainty, as was the case previous to 1853, 
when the country was flooded with old Spanish and Mexican 
depreciated coin, and when silver of American coinage of full 
legal weight flowed out of the countr}^ as fast as the mints could 
issue it. If France should admit free coinage and unrestrained 
circulation of silver, and silver continue depreciated, she would 
have to immediately mint anew not less than $700,000,000 of 
silver, which, by the competition of bullion brokers, would be 
sent to her in exchange and for the supplanting of the 
$700,000,000 of gold which she now possesses. This vast sum 
is more than sufficient for all the available silver in the world to 
cushion upon, if France should again adopt unlimited coinage of 
silver, and maintain her standard of I5|- to I. Nor could we 
under such circumstances retain in this country a single dollar of 
silver, if it was remonetized here according to the standard of 16 
to I. In fact, with a bi-metallic standard we cannot control and 



THE SILVER QUESTION. 49 

say what kind of coin we will have in circulation ; for other 
countries can at their will draw from us either all our silver or all 
our gold, and substitute the one metal for the other. Long 
before we nominally demonetized silver, it was practically de- 
monetized and banished from our territory. The recent depre- 
ciation of silver is, however, due to the recent action of the 
German Government ; and if any debtor therefore, has now a 
grievance by reason of the demonitization of silver, it is a grievance 
against the German Empire and not against the Government of the 
United States. Prudence, therefore, would seem to dictate that 
whether debtors have or have not a grievance, we should not 
again, by adopting the bi-metallic standard, permit the practical 
demonetization or monetization of either silver or gold in this 
country to be absolutely under the control of other governments. 
We cannot be masters of the situation with a bi-metallic standard. 
We can only control the kind of coin we will use by utterly 
refusing to give the option which the bi-metallic standard implies, 
and the real question of the whole controversy is: " Shall we have 
the coin of our choice or the coin which other nations miay select 
to dole out to us as their caprice or interest may from time to 
time dictate? " 

On the other hand, the great commercial countries with which 
we are in intimate relations, and which recognize the single gold 
standard, have great reservoirs of gold, and ability through their 
foreign commerce to either receive our surplus gold and pay for 
it, or send us their surplus gold and receive our products in 
exchange. These great reservoirs of gold, furthermore, immedi- 
ately respond to any deficiencies or demands for gold in the 
various commercial countries using gold as a standard, and so, by 
the law of supply and demand, keep the volume of gold in 
equilibrio with the volume of commodities to be measured, and 
greatly aid in maintaining, in respect to most articles, a uni- 
formity of prices. It would seem to be apparent, therefore, from 
these considerations alone, that for this country to now reject the 
coin of the great commercial nations as a standard of value, and 
adopt another standard, or two standards, would inevitably entail 
upon it great and incalculable loss and inconvenience, and power- 
fully contribute to arrest our future industrial and commercial 
development. 



50 PRACTICAL ECONOMICS. 

THE DOLLAR OF THE FATHERS AND THE PAYMENT OF DEBTS. 

The question of next and final importance to be considered is: 
Is it desirable to provide by legislation that debts ' incurred prior 
to 1873, when silver was demonetized, may be paid in either gold 
or silver, as the law authorized before that period? If silver is to 
be permanently and largely depreciated relatively to gold, in con- 
sequence of a diminution in the amount of labor required to pro- 
duce silver, this is a practical and important question of constitu- 
tional law and morals. But if the present price of silver is owing 
to temporary influences, and if within a few years it is likely to 
resume its old price in the markets of the world ; or if the adop- 
tion on the part of the United States of the bi-metallic standard 
will, as soon as our mints have coined all the silver presented for 
coinage, restore silver to par, or nearly par, with gold, the question 
is comparatively unimportant. For the debtor cannot show that 
he has been injured unless he can prove that silver, as merchan- 
dise, would be depreciated, relatively to geld, after restoration of 
the bi-metallic standard, as it existed at the time his debt was 
contracted. Let us, therefore, examine the question from the 
standpoint of constitutional law and morals. 

Debts payable in coin are in effect payable in commodities. 
A coined dollar before 1873 in this country was not an imaginary 
unit, but a physical actuality, composed of 412^ grains of silver, or 
28.8 grains of gold. In all commercial transactions common 
honesty also requires that the dollar shall always be treated as a 
commodity — that is, that its name shall always indicate a given 
fineness and weight of metal. A bushel is not an imaginary 
measure of capacity ; a yard is not an imaginary measure of 
length ; a pound is not an imaginary measure of weight ; and a 
dollar ought not to be regarded as in any sense an imaginary 
measure of value. 

Again, debts payable in coin dollars are stipulated rights to 
specific property, and in both law and morals should be held 
equally sacred with property itself. Any interference with the 
rights of contracts is only a form of theft or robbery. It is true 
that there has never been any national law requiring that coin 
contracts shall be payable in gold and silver coins of the weight 
and fineness established by law at the time the contracts are 
' Railroad and other mortgage bonds. Government and State securities, and the like. 



THE SILVER QUESTION. 5 I 

made, but it is generally recognized, nevertheless, as a moral and 
constitutional obligation to pay in the same number of grains of 
pure metal as the law required when a given contract was made. 
And it is time that Congress should act and proclaim that this 
hereafter must be the known, conceded, and recognized rule. 
There is no reason, furthermore, why this rule should not be 
applicable to all debts contracted when silver was a practical legal 
tender, even if silver is permanently depreciated, and if its full 
remonetization will not restore it to par with gold. 

THE ADOPTION OF THE BI-METALLIC OR ALTERNATE STANDARD IS A 
VIOLATION OF THE NATURAL LAW OF SUPPLY AND DEMAND, 
WHEN ONE COIN IS MORE CONVENIENT THAN THE OTHER. 

It is claimed by some that the demonetization of silver, and 
the adoption of a single gold standard, will so far appreciate the 
price and value of gold, as to greatly increase the burden of ex- 
isting debts, and diminish the supply of useful instrumentalities 
for effecting national exchanges. But this, although a specious, 
is an utterly false theory, unsustained by eithet* facts or logic. 
Any demand, where human industry is left free, will be met by a 
corresponding supply. The fact that there may be at a given 
time an increased demand for gold, and a diminished demand for 
silver, does not necessarily indicate or prove, that the cost in 
labor of producing gold has increased, or the cost of producing 
silver has decreased. It simply indicates the direction that 
natural laws are giving to production, and also that the same 
laws are interposing obstacles in the way of producing things 
inconvenient or useless. It is undoubtedly true that the cost of 
producing both gold and silver is much less than formerly. 
Every railroad and other modern improvement, which gives 
cheaper clothing and food to miners, as well as all labor-saving 
machinery employed in mining, enables labor to produce a larger 
amount of gold and silver in a given time. Hence the great 
depreciation of both gold and silver during the last third of a 
century. And the probabilities are that this depreciation in the 
value of this precious metal will further continue ; and creditors 
must submit to such results. Within the next quarter of a 
century, instead of one railroad crossing our continent (as in 1877), 
there will probably be half a dozen, with several branches, further 



52 PRACTICAL ECONOMICS. 

developing our natural reservoirs of gold and silver. In fact the 
recent abundant, or, what is the same thing, cheap production of 
both gold and silver, is the sole cause which has necessitated the 
partial demonetization of silver — the most cumbersome metal — 
by countries maintaining a high scale of prices of wages and 
commodities. In other words, it is the abundance, not scarcity, 
of the precious metals that has given rise to the controversy as 
to what metals it is expedient to use at this time for circulating 
media. No one can suppose that this controversy about de- 
monetization of silver has been occasioned by any abstract desire 
for discussion ; it has been forced on the world by the necessities 
of the situation. There is a natural law by which both labor 
and capital tend to the most profitable employments, and 
if there is a temporary increased demand for gold and a tem- 
porary diminished demand for silver, labor and capital in the 
production of gold will be supplemented, until an equilibrium is 
established, and without any reference to the permanent cost 
of the production of either metal. Supply and demand are to 
production what waves are to the ocean ; and notwithstanding 
the depressions created always and everywhere by these waves, all 
scientists agree that the general and average level of the ocean is 
constant and unvarying. It is by the natural laws of supply and 
demand that the introduction of the most desirable commodities 
is always stimulated, and the production of surplus and unsuita- 
ble articles is checked and discouraged, without reference to their 
cost of production. Thus far all the evidence tends to show that 
the cost of producing silver relatively to gold has not been 
apparently diminished. Now, applying these principles to the 
problem under consideration, it follows that the adoption of the 
bi-metallic, or alternate standard may, for a period, create an arti- 
ficial demand for a coin not suited to the wants of some com- 
munities, the result of which may be the indefinite production of 
an article not well suited to certain human wants. Nature has 
created an abundance of both gold and silver. If man refuses to 
produce the metal best adapted to his wants, and persists in 
producing another, ill-adapted to his wants, by an artificial, bi- 
metallic standard, he makes warfare upon the beneficence of 
the Almighty. Therefore the conclusion : — that the adoption 
of a bi-metallic standard is a violation of the natural laws of 



THE SILVER QUESTION. 53 

supply and demand, and an attempt to provide for the survival of 
unfittest. 

Again, the gold-producing power of the earth is abundant and 
unlimited, and the supply of this metal will be no more limited in 
the future, than the supply of milk or whiskey; and if left to 
natural laws will always be equal to the demand. The employ- 
ment of coin is not an absolute necessity, for commerce can be 
carried on by barter. But food and clothing are absolutely neces- 
sary for. the sustenance of human beings. And yet we find that 
these absolutely necessary articles are best supplied when their 
production is left to the natural laws of supply and demand. 
Value is the relation or ratio between two articles or services ; 
and there is no more propriety in establishing a relation between 
silver and gold, than between iron and lead, or rye and wheat ; or 
between silver or gold and brass, copper, and all other commodi- 
ties. When economic laws and the efBcacy and value of indi- 
vidual judgment were less understood than now, governments 
were logical, and established prices, or the relations of all labor or 
commodities to gold and silver. But now, in the main, prices and 
production are left to individual judgment and competition, and 
an arbitrary regulation of the relations of silver to gold is now the 
sole relic of governmental interference in regulating the prices of 
articles ; or, in other words, in establishing the relation of things 
as expressed in money. The reason why gold and silver are the 
best standards of value is, that they are the products of human 
labor, and that their production will always be regulated by de- 
mand. They are, therefore, not a Jiat currency. The quantity 
produced is not regulated by the arbitrary actions of any govern- 
ment, but is determined by individual judgment and the natural 
influence of competition. The production of gold in the United 
States is at present [1885] about thirty millions per annum. 
There is no reason why this domestic product of gold should not 
be agumented to more than one hundred millions per annum, if 
there is a demand for it — and all there is wanting to produce it, 
is demand. We have capital and abundance of labor craving em- 
ployment, and gold-bearing rocks and fields without limit. Here 
is an unlimited opportunity for debtor or creditor who wants to 
" root " or labor at the remuneration afforded by the prosecution of 
other similar labor ; and it is not proposed to compel him to root 



54 PRACTICAL ECONOMICS. 

or labor at" something that is less profitable. Furthermore, if it is 
gold rather than silver that is wanted in this country, every pound 
of our silver product, as well as our other commodities, can be 
used to buy gold in the markets of the world : and thus the gold 
resources of the world are at our command. 

THE LAW OF SUPPLY AND DEMAND. 

A brief word further on the law of supply and demand in 
respect to currency, and in answer to the frequent assertion that 
unless the Government freely coins silver and assists its circula- 
tion, the country will suffer for lack of sufficient currency. If 
there was a real or anticipated scarcity of wheelbarrows in the 
country that man would be considered a fool who should seriously 
propose that Congress should undertake to regulate the supply by 
statute. And yet there is one and the same law governing alike 
the supply of gold and of wheelbarrows. They are both tools or 
commodities, and the country will have and use all of either that 
it can use profitably. The dentists and jewellers of the United 
States have never, even at the time when gold commanded the 
highest premium, experienced any difficulty in getting all the gold 
they wanted. We have never heard that any of them ever con- 
templated petitioning Congress on the subject, or that they lay 
awake nights for fear that their business would be interfered with 
by reason of a deficiency. And if they had wanted ten or a 
hundred times more gold than they actually used, and their cus- 
tomers had been willing to pay for it, they could easily have had 
it. In short, there can never be a permanent scarcity or surplus 
of gold and silver in a country which adopts the world's currency, 
any more than there can be a scarcity of milk or wheat ; for the 
law of supply and demand regulates the quantity and adjusts the 
prices of one of these commodities just as much as it does the 
other. If, in the next twenty-four hours, one hundred millions of 
legal tenders were to be added to the circulation of the United 
States, domestic prices, other things remaining equal, would on 
the average be affected to the extent of not less than one seventh, 
and currency would remain in respect to scarcity or abundance 
relatively as before.' But if one hundred millions of gold, with- 
out labor, were to be mysteriously showered down upon us in the 
form of coin, it would not affect prices appreciably, for the disturb- 



THE SILVER QUESTION. 55 

ance from the increased quantity would be diffused over the total 
coin circulation of the world, estimated at upward of ten thousand 
millions. The world's currency may therefore be compared to a 
reservoir like the broad ocean, capable alike of quietly absorbing 
any surplus or supplying any deficiency in the circulation of any 
locality without disturbing the general level of prices. Any 
increase, on the other hand, in the volume of currency which 
owes whatever it has of legal-tender character to statute enact- 
ment rather than to a universally recognized value, must be 
subject to local rather than general laws, and, like an accumulation 
of water escaping from a broken reservoir, will prove powerful for 
disturbance just in proportion as its volume becomes dispropor- 
tionate to the channel in which it is compelled to flow. Hence 
the extraordinary gambling fluctuations which of necessity attend 
the use of any currency whose circulation is local and does not 
partake of the universality of the world's currency ; and experi- 
ence must inevitably sooner or later show that there can be no 
permanent prosperity in any country that undertakes to do busi- 
ness with any other currency than the world's currency. 

THE MASS OF THE PEOPLE NOT DEBTORS BUT CREDITORS. 

It is also pertinent to call attention, in connection with this 
general subject, to the opinion which so generally prevails, that 
the mass of the people of this country are debtors, and that their 
interest naturally arrays them in opposition to any policy that 
does not favor what is popularly termed " cheap money " — the real 
significance of which to the majority of those who use it is '' poor 
money." Now, so far from this hypothesis being warranted, the 
exact contrary is the truth. The great mass of the people in this 
and every other country do not possess sufificient of credit, through 
the ownership of property or amount of income, to enable them 
to become debtors — however much they may desire to be — except 
for such insignificant amounts as the application of a few days' 
labor or the practice of a brief economy would sufifice to liquidate. 
The great mass of all who work for wages — from the fact that 
the wages are paid periodically — are also, from necessity, nearly 
all the time creditors and not debtors; while in the case of that 
much smaller portion of our population whose annual receipts ex- 
ceed their annual expenditures, the surplus in their hands, at any 



56 PRACTICAL ECONOMICS. 

one time, for investment is so small that the onl)' profitable way 
open to them for using it is by assuming the position of creditor 
— i. e., by loaning either directly on a promissory note, bond, and 
mortgage, or by the purchase of some evidence of indebtedness 
issued by the Federal or State governments or by corporations, 
or by loaning indirectly as stockholders or depositors through 
banks or institutions for the management of savings. Hence the 
origin of the eleven hundred millions of dollars standing to the 
credit of depositors in our savings banks. Hence, also, the even 
more striking fact that in New York City, where the multitude of 
banks is popularly supposed to be due to the accumulation of 
large wealth in few hands, the average amount of bank stock 
owned by individual shareholders does not exceed a par value of 
$3,000. The only class of debtors whose instincts, therefore, 
naturally prompt them to cry for abundant and cheap money, irre- 
spective of quality, are what may properly be termed " bloated 
debtors," or.those who, by reason of large property, have claimed 
and obtained large credits, and have used those credits, or, what 
is the same thing, have run in debt partially on account of legiti- 
mate enterprises, but in the majority of cases for the furtherance 
of illegitimate speculations whose existence and maintenance 
have worked to the discouragement of honest productive industry. 

CONCLUSION. 

There can be no objection to the use of silver as a subsidiary 
or token currency, issued only in exchange for gold at nominal 
values, or at all times redeemable in gold at nominal value, not 
legal tender in excess of $10 for any one specific payment, to any 
extent the people will desire. But when it is proposed to go 
further, and compel the sons to accept the dollar of the fathers 
to an unlimited amount, then an answer to this proposition, sim- 
ple and conclusive, is that the dollar of the fathers is not, on 
grounds of convenience, adapted to our use. The " sons " want 
something better — the most improved tools of trade, — as they 
want better methods of conveyance, of warming, of lighting, ven- 
tilation, printing, and communication of news, than did the fathers. 
They want, as a condition for success in business, the coin receiva- 
ble without discount by the great commercial nations with which 
the bulk of our foreign commerce is conducted. And herein is 



THE SILVER QUESTION, 57 

another point that ought not to fail of receiving full consideration, 
namely, that whereas, in most cases, the first cost of an improved 
tool is greater at the outset than that of a poor and unimproved 
one, in this case the conditions are reversed ; for the first cost of 
the good tool — a gold currency — will be no greater at the outset 
to the country than the first cost of the poor one — a silver cur- 
rency ; while in all subsequent respects the advantages are im- 
measurably in favor of the gold. Any attempt to restore the old 
silver dollar to its place as lawful money, without qualification or 
limitation, — to adopt a coin currency not suited to our wants or 
the age, — is as foolish and absurd as an attempt to displace 
through legislation railroads by stage-coaches, and steamships by 
sailing-vessels. Sovereign power can violate natural laws, the 
same as individuals can : but the penalty of violation is inevitable 
in both cases. 



ARE GOLD AND SILVER INDISPENSABLE AS MEAS- 
URES OF VALUE. 

AN EPISODE OF THE DAYS OF CURRENCY INFLATION AND PAPER 

MONEY. 

IN a discusssion which occupied no small part of the columns 
of the newspaper press of the United States in 1875-77 on 
the maintenance, further inflation, or redemption of the then 
"legal-tender" (irredeemable paper) currency of the country, the 
Rev. Thomas K. Beecher, a prominent clergyman, settled in El- 
mira, New York, in a communication to the N. V. Nation (Octo- 
ber, 1875), submitted the propositions, as to whether t/icrt^ is anj/ 
valid distinction between gold atid legal tender (paper) as a measure 
of value ; and whether the use of gold and silver as a measure of 
value is an indispensable prerequisite for a sound and correct 
system of exchange ; and supported the negative view of the same 
by the following course of argument and illustration. 

" Agreeing that gold is a measure of value that has at- 
tained an almost world-wide acceptance, does it follow that 
gold should be the only legal tender, and that all currencies 
or other debt-certificates of whatever kind should be " redeemable 
in gold only? I detect in the general flow of commerce phe- 
nomena which I will call closed circles of exchange — /. r,, circles 
of exchange, within which the same currency may revolve for 
ever, independently of gold. Such circles are indeed little short 
of countless. Some of them are very small, as, for instance, the 
dealings of a grocer with his milkman ; the grocer taking five dol- 
lars' worth of milk-tickets and crediting the milkman accordingly, 
and the milkman redeeming the tickets in milk — gold meanwhile 
serving the use of a measure both of the groceries and the milk. 

" Am I safe in asserting that whenever a closed circle like this 
can be demonstrated, there is need of neither gold nor silver as a 

5S 



GOLD AND SILVER AS MEASURES OF VALUE. 



59 



legal tender? True, if either party dies and the business be 
wound up by strangers, there must come in an outside currency. 
But so long as the milkman and the grocer continue in their re- 
spective relations, have we not a trade of say one hundred dol- 
lars a year, in which milk-tickets serve all the uses of currency? 
From this smallest circle step at once to the largest circle — a 
sovereign government like the Government of the United States, 
with an undisputed right to tax the people — say two hundred 
million dollars a year. The people at large are to pay to the 
national treasury, in the course of a year, two hundred millions 
of dollars. The Government is to disburse precisely the same 
sum to the people. Have we not here a closed circle — foreign 
creditors excepted ? 

" Where lies the fallacy, then, in asserting that any stable gov- 
ernment may wisely meet its obligations by issuing its notes 
promising to pay, just as our greenbacks do promise to pay ? 
And inasmuch as by the tax law every citizen must pay to the 
Government, and these notes of the Government by their very 
face are receivable for taxes, why not make them, for all purposes 
of internal commerce, legal tender, their volume to equal at least 
the amount of the annual budget ? 

" The Treasury notes thus issued are, on a large scale, what 
the milk-tickets were on a small scale. 

"If the Government has a legal right to take from citizens at 
large two hundred million dollars, I am not able to see that there 
is any unwisdom or injustice in requiring citizens to recognize 
Treasury notes — which are legal tender to the Government — as 
legal tender also in the settlement of private accounts, etc., etc." 

To these interrogatories and deductions, Mr. Wells returned 
through the columns of the Nation the following reply, which, at 
the time, attracted considerable attention, and was the occasion 
also of no little merriment on the part of the public. 

It was prefaced by the editors of the Nation with the follow- 
ing title : 

"dr. wells' opinion in consultation on MR. beecher's case." 

" Mr. Beecher says he detects in the general flow of commerce 
what he is pleased to term ' closed circles of exchange,' and asks 
why some currency other than gold may not be used and continue 



60 PRACTICAL ECONOMICS. 

to revolve for ever independent of gold in such circles. To this I 
reply that I, for one, see no objection to the use of such other 
currency, under the conditions specified. I'or example, take the 
illustrations which Mr. Beecher brings forward ; ^x\6, first, that of 
the grocer and the milkman, who exchange between themselves 
groceries for milk-tickets. What objection can there be to their 
so doing, or why should any one interfere to prevent this little 
arrangement, any more than any other mutually agreeable trade or 
bargain the grocer and milkman may choose to make ? So, in 
the second case supposed by Mr. Beecher — namely, that of the 
Government issuing notes promising to pay and made receivable 
for a year's taxes — I can see no objection to that either, further 
than that, as a general rule, it is better for Government and 
individuals alike to pay cash down, rather than issue their I. O. 
U.'s or get trusted. And if the Government wishes to obtain 
commodities or services, and promises to pay for them in its own 
notes or cabbage-leaves, and people are found ivilliiig to take such 
notes or cabbage-leaves in exchange, I see no reason for entering 
any protest against it, or calling on any one to prevent the Gov- 
ernment from issuing, on the one hand, or the people from 
receiving, on the other. The highest right of property is the 
right freely to exchange it for other property ; and the highest 
attribute of personal freedom is for each person to determine for 
himself under what conditions he will render service. Thus far, 
then, there is no disagreement in our respective positions. But 
when Mr. Beecher goes a step further, and says he is unable to 
see * any unwisdom or injustice in requiring citizens to recognize 
Treasury notes [whether the same be greenbacks or cabbage- 
leaves], which are legal tender to the Government, as legal tender 
also in the settlement of private accounts,' then Mr. Beecher and 
I walk apart ; and it is just here, in my opinion, that Mr. Beecher's 
mental obscurity about money and legal tender begins, for he 
seems unable to recognize any broad distinction between * may,' 
or the permissive sense, and ' must,' or the compulsive sense, in its 
application to money. To make this clear let us take an illustra- 
tion. 

*' Suppose I go on a certain Saturday to Elmira, to hear Mr. 
Beecher preach. Time hanging heavy while waiting for Sunday 
to come, I stroll on Saturday evening to Smith's pleasant gambling- 



GOLD AND SILVER AS MEASURES OF VALUE. 6 1 

saloon to have a little amusement, and being at the same time on 
* frugal thought intent,' I conclude to risk but five dollars for my 
evening's diversion, and so bet but fifty cents at a time on the 
green cloth. To enable me to do this, I get a five-dollar green- 
back exchanged at the cashier's desk for ten red ivory counters, 
or ' chips,' as they are technically called ; and after playing to my 
heart's content I leave, and Sunday morning finds me at Mr. 
Beecher's church. (I acknowledge that my conduct is rather in- 
consistent ; but it is not my conduct that we are looking after just 
at present.) The sermon pleases me so much that at its close, 
when a collection is taken up to help pay Mr. Beecher's well- 
earned salary, I determine to contribute ; and finding one of those 
red chips I received in exchange the night before in my pocket, I 
put it in the hat. When the money comes to be delivered over 
to Mr. Beecher, he very naturally expresses some surprise at find- 
ing this strange-looking visitor nestled in among the bank-notes, 
the fractionals, the cabbage-leaves, and the milk-tickets, and asks 
what it all means. 

" To this I may be supposed to respond that the chip is cur- 
rency, ' revolving perfectly in the closed circle ' of the faro-bank, 
and fulfilling within that circle all the offices of money, indepen- 
dently of gold. Mr. Beecher has only to go, after church, down 
to Smith's saloon, and present the red chip I have given him to 
Jones, the cashier, and Jones will either allow him to bet with it 
or, if the bank was not cleaned out the night before or seized by 
the pohce, will probably redeem it in a fifty-cent scrip. ' But, my 
dear sir,' responds Mr. Beecher, ' I am a minister, and I don't 
want to be seen going into Smith's saloon.' I answer : ' I suppose 
it would be somewhat disagreeable to you, but you can give this 
chip to the milkman, the grocer, or the Government tax-collector 
to-morrow morning. They understand all about these " close 
circles " of exchange ; they will take it.' ' But I am not so certain 
of that,' says Mr. Beecher. ' How will they, any more than I, 
know what its value is, or whether it will be redeemed in any 
thing else?' 'Don't trouble yourself about that matter,' I 
rejoin ; ' I have fixed all that. I happened to be a member of 
Congress last year, and after devoting two weeks' earnest study to 
the subject of finance, I was not able to see, any more than you 
now are, ''that there is any unwisdom or injustice in requiring 



62 rKACTTCAL ECONOMICS. 

citizens to recognize Treasury notes " and gambling chips — the 
one of which is legal tender to the Government, and the other 
legal tender in the faro-bank — " as a legal tender also in the settle- 
ment of private accounts." More than this, the ivory chips are 
prettier than the greenbacks, and more convenient for carrying ; 
and what better device can there be for indicating their difference 
in value than by a change in their color ? They have also in per- 
fection another attribute of really good money, inasmuch as they 
are non-exportable ; and if we take into consideration the number 
of fights, feuds, and murders that take place in gambling-saloons, 
I think that we are fairly entitled to claim for the chips that they 
are " battle-born " and " blood-stained." So I accordingly per- 
suaded the National Legislature to pass a law making Treasury 
notes, gamblers' chips, milk-tickets, and every other instrumen- 
tality of exchange which is capable of revolving perfectly in a 
closed circle, legal tender in payment for all private debts. ' You 
see it now, don't you, Mr. Beecher?' 'I rather think I do,' 
responds Mr. B. ; ' but at the same time I wish that when you 
next come to hear me preach, and feel that I have rendered you 
a service and strengthened you up to further good work in 
Washington, you would give me something that don't belong 
to a closed circle of exchange — something that I shall not feel 
obliged, before accepting, to examine a statute-book, read my 
Bible, consult the resolutions of the last political convention, or 
wait the news of an election in Ohio, to decide whether I had 
better take it, and, if I do take it, how much I can get for it.* 

" Seriously, however, the trouble with Mr. Beecher and a good 
many other persons is, that they fail to recognize, that ' legal 
tender,' whose father is Government and whose mother a Statute 
Law, is a suspicious character, and has been engaged in all man- 
ner of disreputable transactions ever since he was born ; whilst 
gold and silver, of acknowledged weight and purity — i. e., coined 
money — are nature's noblemen, whose patent of honesty is so 
written on their front that they require no passport, in the shape 
of a legal-tender statute, to find acceptance everywhere, as the 
universal equivalent for all exchangeable commodities and ser- 
vices, and as the universal solvent for all debts ; and, furthermore, 
that no matter how great may be their recommendation on the 
score of cheapness, it is very poor economy for a man or a com- 



GOLD AND SILVER AS MEASURES OF VALUE. 63 

munity to work with poor tools or dishonest, tricky servants if 
good tools and honest servants are available. 

" Money existed before statutes, and owes its origin to man's 
instincts or natural promptings. Gold and silver came into use as 
money also before statutes, and were made choice of for use as 
money for exactly the same reason that men have made choice of 
cotton, flax, wool, and silk as materials for clothing, and stone, 
brick, and timber as materials for houses ; because they best of all 
things supply certain wants and necessities. 

" If the Government will confine itself simply to the business 
of saying how much pure gold and silver shall be entitled to use 
the name of ' dollar ' ; that the standard of a dollar once 
judiciously fixed shall never be changed ; that everybody Avho 
talks dollars shall always and under all circumstances be under- 
stood to mean but this one kind of dollar ; that any promises to 
pay, without specifying what the payment is to be in, shall also be 
interpreted to mean the acknowledged standard — if the Govern- 
ment will do these things, and these things only, then all legal-tender 
laws may be wiped at once off the statute-books, and everybody 
will be better for it. And when that day comes, if the milkman, 
grocer, keeper of faro-bank, or children on a rainy day up in an 
old garret, want to trade, swap, barter, or exchange, and use milk- 
tickets, ivory chips, or pieces of old newspapers respectively, 
to serve as memoranda, checks, counters, or symbols, I will 
promise Mr. Beecher that no one will object ; unless the milkman, 
grocer, faro-bank keeper, or garret children want to make them 
legal tender, and compel him, and me, and all other persons, 
because of the artificial character thus given them, to take them 
in payment of commodities and services, when we don't want to." 

" I am yours, most respectfully, 

"David A. Wells." 



TARIFF REVISION : ITS NECESSITY AND POSSIBLE 

METHODS. 



THE old writers, before the discovery of America, were ac- 
customed to indulge in all manner of fanciful specula- 
tions respecting the conditions and actions of the people on the 
" other side" of the world, or their antipodes, supposing, indeed, 
that there were any. It was generally agreed that they must walk 
with their heels upvv^ard and their heads hanging down, and do 
everything in a reverse order from that which was then regarded 
as proper and natural in the Old World experience. A little prac- 
tical experience, however, in enlarged navigation soon showed 
the absurdity of such imaginings ; and yet if the old speculators 
had restricted the sphere of their imaginings to the mental rather 
than the physical actions of the " other side" men, they might 
not have been considered by posterity so far out of the way in 
their conclusions. For America, or rather that part of it known 
as the United States, has always been to Europe a country of 
surprises or contraries, in most matters political, financial, eco- 
nomic, and theological. And of these surprises none could be 
more remarkable than that one of the tvvo great parties into which 
the country is politically divided should regard the continued 
maintenance in time of peace of an extraordinary, onerous, and 
unnecessary system of taxation as a policy likely to insure to 
it a popular favor and support ; while the other great party, 
either through ignorance or cowardice, shirks the issue, hesitates 
to boldly array itself in favor of exempting the masses from ex- 
cessive public burdens, and through some of its chief leaders 
even favors the policy and tries to do business on the capital 

of its opponents. In short, taxation in excess of any legitimate 

64 



TARIFF REVISION. 65 

requirements of the State — the thing which in all other countries 
has heretofore been regarded by politicians and statesmen as 
the certain precursor of popular wrath and party defeat — has 
really in the United States come to be looked upon as a good 
thing in itself, and as politically and economically expedient. 
'■'■If there were no public debt, no interest to pay, no pension-list, 
no army or navy to support, I should still oppose ' tariff for reve- 
nue only' and favor protective duties" {taxes). {Speech of Hon. 
Wm. P. Frye, Se7tate of the U. S., Feb. 10, 1882,) Again in a de- 
bate in the U.S. House of Representatives, March 4th, 1882, on 
a proposition to reduce or abolish the oppressive and obsolete 
fees, exactions, and formalities of the existing consular system 
of the United States, Frank Hiscock, a representative of the 
State of New York — a State that is pre-eminently commercial — 
after admitting the existence of the grievances alleged, never- 
theless declared himself in favor of their continuance, and simply 
for the reason that they were an obstruction to commerce ; and 
if removed it might be difficult to replace them with other equiv- 
alent obstructions. Out of such a curious state of things have 
come certain results so plain " that he may run who reads," 
and which may be enumerated in part as follows : 

First. The annual gathering through the tax-gatherer of a 
surplus revenue of from one hundred to one hundred and fifty 
millions of dollars in excess of any legitimate requirements of 
the government; the same constituting a constant incentive 
for needless and corrupt expenditures, the multiplication of 
offices, and the enlargement of the sphere of influence of the 
federal government. The rapid reduction of the public debt 
occasioned by the war has been a never-ending theme of na- 
tional self-congratulation ; but taking taxation as the measure 
of the burden of obligation which the war entailed upon the 
country (and it is the only proper measure), the war debt has 
in reality been diminished by a sum which in comparison with 
the national receipts of revenue is very inconsiderable.' 

' Thus the current burden of the war debt (omitting the repayments of the prin- 
cipal of the debt, which is not in the nature of a demand obligation) is the annual 
taxation required to provide means for the payment of interest on the debt, and 
the requirements for pensions. The largest obligation incumbent on the Uni- 
ted States in any one year on account of national debt-interest was In 1867, and 
amounted to $143,781,000. The disbursements for pensions during that same 



(£ PRACTICAL ECONOMICS. 

Second. A condition of things in which the country depends 
almost exclusively on its harvests for its prosperity, and has 
no export trade worth mentioning except in the raw produce 
of its soil, representing in the form in which it is exported the 
minimum of embodied labor. In place of an annually increas- 
ing ability on the part of the nation to withstand foreign com- 
petition in respect to the production of the so-called products of 
manufacturing industries, all the evidence points in the opposite 
direction ; our exports of manufactured articles forming a con- 
siderably smaller percentage of the total exports in 1879-80 than 
they did in 1859-60.' Never, moreover, in the history of the 

year were $20,936,000. In 1871, six years after the termination of the war, and 
when it is reasonable to infer that nearly every person who had a legitimate claim 
for injuries directly and iiiuncdiatcly contingent on his service in, or to, the fed- 
eral armies had presented the same and made a settlement with the government, 
the pension disbursements amounted to $34,443,000; and after reaching this 
maximum, the annual expenditure on this account, in accordance with all former 
experience of the United States and other countries, and also with the life-expec- 
tation tables of life-insurance companies, began to rapidly decrease, and in 1S78 
had become reduced tc $27,137,000. The payments on account of interest during 
this same year were $125,576,000. The direct aggregate burdens of the war debt, 
as measured by taxation and expenditures, were therefore $164,717,000 in 1867 and 
$152,713,000 in 1871; on the other hand, the obligations on the part of the govern- 
ment for interest on the public debt ($57,360,000 on the 1st of July, 1882) and for 
pensions ($100,000,000 actually appropriated) will probably amount for the current 
fiscal year to about $150,000,000; thus making the aggregate burden of the present 
war debt but little less than it was soon after the close of the war. For the future, 
some who have made a very careful study of the matter do not hesitate to predict 
that the enactment of the so-called " arrears of pensions" law (in accordance with 
which every man who served in the army or navy of the United States during the 
war and was discharged in fair health is practically considered to have a valid 
claim for a pension against the United States on account of personal disabilities 
contingent on advancing age) will entail, from first to last, a further aggregate 
expenditure on the country of not less than two thousand millions of dollars. 

' The ratios which the exports of the unmanufactured and manufactured pro- 
ducts from the United States have sustained to each other during the three decen- 
nial periods included between the years 1859-60 and 1879-80 are as follows: 

1879-80. 1869-70. 1859-60. 
Per cent 
of total. 

Unmanufactured products 87.5 

Manufactured do 12.5 

Unmanufactured products have risen, therefore, from being 82.3 per cent of 
the total exports in 1859-60 to 87.5 per cent in 1879-80; while, during the same 
oeriod, manufactures have fallen from 17.7 per cent to 12.5 per cent. 



Per cent 


Per cent 


of total. 


of total. 


86.6 


82.3 


13-4 


17.7 



TARIFF REVISION. 



67 



country has the import — responsive to domestic demand and 
ready sale — of the products of foreign industries into the United 
States been greater than at present (1882)'; while, on the 
other hand, the stocks of American manufactured products con- 
tinually tend to accumulate and bring on the stagnation and 
disaster consequent on what is termed '' over-production." 

Third. The " merchant marine," or carrying trade, of the 
United States upon the ocean— a branch of national industry 
once second only in importance to agriculture— has practically 
ceased to exist. Differ as men may as to the proper remedial 
legislation for such a state of things, there ought to be no dif- 
ference of opinion as to its cause. Commerce is the interchange 
of commodities and services between men and men and coun- 
tries and countries ; and its one essential condition of existence 
and growth is that such exchanges shall be reciprocal. To sell 
we must buy, and in order to buy we must sell. Now for many 
years the policy of the United States has been to impose taxes 
with the avowed purpose of restricting so much of the commerce 
of the country as is carried on by the agency of ships upon the 
ocean ; and that it has been eminently successful in its results 
will not be disputed. If it were not a most serious matter, it 
ought to be regarded as a huge joke, to propose, as has recently 
been done, to assemble the several American States by their rep- 
resentatives in a Congress, and try to get them to reverse the 
principles of human nature by agreeing, on account of neighbor- 
hood and good feeling, to permanently trade at the United 
States shop, when a shop across the way offers to sell cheaper 
and take the products of the purchaser in barter payment. It 
can't be done. 

Fourth. That the market for the products of the manufac- 
turing industries of the United States is practically limited to 
the requirements for home consumption, and that the power of 
domestic production in all branches of industry, consequent 

1 The imports of merchandise have never been so large as in the fiscal year 
ending June 30, 1S82. The largest imports of any one year prior to 1880 oc- 
curred in 1873 and amounted to $642,13.6,000. For 1880 the aggregate was 
$667,954,000, but for the fiscal year 1882 the imported values were returned at 
$7241623,000 ; of this increase, $10,533,000, or 12 per cent of the present aggre- 
gate'import of $93,000,000, occurred in the class of metals, and $23,731,000 in 
articles of clothing. 



68 PRACTICAL ECONOMICS. 

upon the application of machinery, conjoined with high intel- 
Hgence, to our great natural resources, continually tends to ex- 
ceed the power of domestic consumption, are facts too evident 
to be disputed. The natural, nay more, the inevitable, outcome 
of such a condition of affairs is an effort on the part of the 
producer to prevent the accumulation of a surplus, by restrict- 
ing production and keeping a part of his machinery idle ; and 
this in turn means limitation of the opportunity for employment 
to the laborer. The manufacturer also sees clearly, that if he 
could produce and sell cheaper he could enlarge his markets, 
and at least maintain if he did not enlarge the sphere of his 
business activity ; but having become thoroughly indoctrinated 
with the idea that the maintenance of a system of national taxa- 
tion, which abnormally augments the cost of all his services and 
supplies, is absolutely essential to his industrial prosperity, and 
even existence, he naturally opposes any reduction of taxes, 
denounces as unpatriotic and visionary those who favor such 
reductions, and as naturally seeks to avail himself of the only 
other avenue open to him for cheapening the cost of his products, 
namely, that of cheapening his supply of labor. This the 
laborer resists, and the outcome of this resistance is seen in 
strikes, local disturbances, and the extensive interruption of the 
business and exchange of the country such as has characterized 
the history of the present year. But what chance has the 
laborer for successful resistance, with a limitation of market for 
the sale of the products of his industry and an annual import of 
700,000 foreign laborers, ready to compete for and embrace 
every opportunity for domestic employment ? Under such cir- 
cumstances there is no possibility of any strike or resistance on 
the part of labor being successful ; and the result of recent ex- 
perience might have been predicted in the absolute certainty at 
the commencement of the present year, as can be at present 
predicted of the future. 

One of the most notable of the strikes of the year, that of 
the freight-handlers upon the piers and at the railroad termini 
of New York, is full of teachings of the utmost interest and 
importance. The question was put at the commencement of 
the difficulties, by the writer, to the foreman of a body of freight- 
handlers — not participating in the strike — on one of the steam- 



TARIFF REVISION. 69 

boat piers of New York: "Is the strike likely in your opinion 
to be successful ?" " There is not a ghost of a chance for suc- 
cess," was the prompt reply. "Why not?" Ans.: "Simply 
for the reason that two men stand ready to do the work that 
offered for only one." " Have the laborers, then, no remedy 
for their grievances?" Ans.: "Yes; let us have a law pro- 
hibiting the coming in of all those laborers from Europe." 
" Do you think the enactment of such a law possible?" Ans. : 
"Yes; if the laborers all over the country were united in de- 
manding it, the politicians would soon bring it about." Now, 
whatever may be thought of the remedy proposed, there can be 
no doubt that the man thus interrogated had a clear view of 
the situation, and its utter hopelessness so far as it concerned 
the strikers. 

But let us further consider this matter. The strikers were, 
it is understood, in receipt of seventeen cents per hour, and 
demanded twenty, on the ground that the former sum was in- 
adequate for the support of themselves and their families. 
Popular sympathy was unquestionably on the side of the 
laborers and adverse to the railroads. The general public, in 
their indignation at the result of railroad management on the 
part of certain individuals, are prone to overlook the great 
service that the railroad system of the United States has ren- 
dered ; to forget that no other one agency in all time has been 
more productive of benefit to the laborer — using the term in its 
ordinary sense, — by enlarging the sphere of his employment, 
cheapening product, and creating abundance ; and that by it 
the cost of transportation has now been so far reduced, that one 
day's wages of the most ordinary laborer in New York wi.l 
suffice to pay the cost of the movement from Chicago to New 
York of all the meat and grain that he can consume in a year — 
thereby placing such laborer in New York, so far as the prime 
cost of his food is concerned, on a par with the laborer that 
lives where food is the cheapest on this continent ; and that in 
comparison with these benefits, all the injury that has resulted 
from " stock-watering" and diversion or squandering of railroad 
capital or receipts, great and reprehensible as this may have 
been, is relatively but as " the small dust upon the balance." 
But in the frame of mind that the public then were (and now 



7b FJ^A C TIC A L E CONOMICS. 

are) the expression was most common, that the demands of the 
strikers were most reasonable, and that the railroads ought will- 
ingly to accede to them. Now if these expressions were any- 
thing more than mere sentiment, the " ought " must have had 
a foundation on the principles of either "charity" or "equity;" 
if the former, then the issue pertains to the province of the 
moralist or philanthropist rather than to the economist ; and if 
the latter, the economic question most pertinent is, according to 
what principles of justice or equity ought a railroad or any other 
corporation to be asked or expected to pay more for what it 
desires to buy and use — be it material or labor — than the cur- 
rent rates established for the same in the open market ? And 
if public opinion could force such a reversal of the laws of trade, 
does anyone suppose that such an arrangement could be perma- 
nent, and not utterly disastrous to the general business interests 
of the country? But had not the strikers any real grievances? 
Most certainly they had. They had found out that their ability 
to earn a comfortable livelihood for themselves or their families 
was becoming impaired ; they had learned generally by hard 
experience what scientific investigation has demonstrated speci- 
fically, namely, that what of grain, meats, dairy products, sugar, 
other food, clothing, metals, and lumber an expenditure of $i.o8 
would have given them in November, 1878, would have re- 
quired an outlay of $1.28 in November, 1880 — before the drought 
influences of the succeeding year — and $1.44 in June, 1882, for 
the obtaining of the same quantities ; or that, wages remaining 
the same, the fall in wages owing to a decrease in their purchas- 
ing power, comparing the first half of 1881 with the first half of 
1882, was equivalent to ten per cent. And becoming painfully 
sensible of such results, without recognizing their causes, both 
strikers and the public made haste to put the blame on the rail- 
roads, when the railroads, through their management, Vv^ere no 
more responsible than any other portions of the body-politic. 
Had the situation prompted the inquiry of how it was that the 
strikers, while receiving the full market rates for their labor, and 
probably the highest nominal wages that are regularly paid for 
similar services anywhere on the face of the globe, should yet 
feel themselves unable to live comfortably on their wages ; and 
how it is that this land of abundance, which is ever ready to 



TARIFF REVISION. 7 1 

supply the food deficiencies of all other nations, has been made 
one of the dearest countries of the world to live in, — had these 
inquiries been instituted and intelligently prosecuted, a rational, 
and indeed the essential primary step in the way of bettering 
the situation would have been taken. And as indicating in part 
what such an inquiry would have brought out respecting the 
influence of the present system of excessive Federal taxation, 
attention is asked to the following facts : 

Federal taxes, both direct and indirect, with very few ex- 
ceptions, are levied on commodities, fall on consumption, and 
must be paid by the consumer in the increased price of the 
things he consumes. Hence it follows that the burden of such 
taxes must be disproportionately heavier on the man who from 
necessity expends all, or nearly all, of his wages, salary, or other 
income in mere living, than on he who only expends one half, 
one third, or a smaller proportion of his income for like pur- 
poses, and lays up the surplus for increasing his resources. 
Under ordinary circumstances any disproportionate taxation 
falling upon the entire class of laborers would be speedily equal- 
ized by an advance in wages; but with a tendency to the limita- 
tion of employment through limitation of markets, and the 
present extraordinary influx of foreign competitive labor, such 
equalization is very difficult, if not absolutely impossible. Every 
dollar raised by the government by taxation for any other pur- 
pose than to provide revenue for its most economical adminis- 
tration constitutes, therefore, a heavier burden on the recipients 
of small incomes and wages than upon any other class of the 
community. 

Recent investigations have shown that, accepting the highest 
reasonable estimate that can be made of the value of the annual 
product of the nation, and supposing the same to be divided 
equally among our present population, the average income of 
each person — out of which subsistence, savings, education, 
means of enjoyment, reparation of waste, and taxes are to be 
provided — v/ould not be in excess of fifty, and probably not 
over forty cents per day. But as a practical matter, we know 
that the annual product is not divided equally, and never can 
be, and that some receive the annual average as stated multi- 
plied by hundreds and thousands; which of course necessitates 



72 PRACTICAL ECONOMICS. 

that very many others shall receive proportionally less. When 
now it is further considered that the present aggregate of 
federal, State, and municipal taxation in the United States 
probably amounts to seven per cent on the value of the entire 
annual product of the country, and that the unnecessary taxa- 
tion of one hundred millions which the federal government 
now collects from the people is equal to fifteen or twenty per 
cent of what the whole people annually save from the product 
of their labors (taking no account of the additional burden 
which the imposition of such taxation entails through increase 
of prices, taxation which the people pay but which the govern- 
ment does not receive), it is possible to form some idea of how 
a fiscal policy of large taxation, which so many politicians and 
so-called statesmen advocate as in the interest of the masses, 
fearfully intrenches on the narrow measure of comfort which 
the masses under the most favorable circumstances can obtain. 
Such " taxes," says Mr. Atkinson, alluding to the fact before 
noticed, that the federal taxes fall on commodities, " take from 
the many what they may actually need for a bare subsistence ; 
they must fall with greatest hardship on those whose earnings 
for their families are less than the average dollar a day to each 
adult man and woman ; and while our present excess of national 
taxation may be equal to only fifteen per cent of the possible 
savings of the whole people, it may take a hundred per cent, 
even the little all, of what the poor may save." Doubtless 
some may point to the great immigration that flows in upon us 
from other countries, and claim that this fact is a sufficient 
answer to the above statement ; inasmuch as it proves that the 
masses in this country have advantages which are not to be 
found elsewhere. Now so far as these advantages are natural 
this claim is not be denied; but its admission does not affect or 
answer the real question at issue, which is, To what extent 
have our great natural advantages — which ought to insure com- 
fort and abundance to every industrious person — been neutral- 
ized or impaired to the masses by the economic policy which 
we have as a nation adopted ? The multitudes who during 
the past summer, from Nebraska to New York, "struck" for 
alleged insufificient returns for their labor — as, for example, the 
coal-miners of Pennsylvania, whom Hon. Abram S. Hewitt in 



TARIFF REVisiorr. 73 

the United States House of Representatives in March, 1882, 
declared to be, from his own personal knowledge, " absolutely- 
suffering for the necessities of life" — were all, undoubtedly, the 
European immigrants of a few years ago. And if 5^0, do not 
their proceedings prove that they are no more content with the 
existing state of things in this country than they were in the 
countries of the Old World from whence they emigrated ? 

The plea has recently been put forward in defence of the 
continuance of our present system of tariff taxation, that it is 
the best system for accomplishing a desirable thing, namely, 
the taxation of capital for the benefit of labor. It would, how' 
ever, probably puzzle the proponent to tell, how such taxes can 
be made to " stick" upon capital in any greater proportion tharf 
upon labor ; or even in anything like as great a ratio. For all ex* 
perience shows that when capital is thus taxed it simply advances 
the tax, and requites itself for the advance by taking two or 
three times as much for itself. The most effectual way of 
primarily doing the thing, which a candidate for Congress from 
New Jersey has recently proclaimed to be most desirable, is to 
adopt the " Sicilian" or " Greek" economic method, of forcibly 
abducting capital as represented by the individual, carrying it 
off to a cave, and compelling it, under fear of prospective loss 
of ears or hands, to disgorge, and then sharing the proceeds of 
the assessment among the laborers. But the ultimate trouble 
here would be, that as soon as capital found out that it was 
liable to be thus arbitrarily treated, and could not easily requite 
itself for forced contributions, it would run away to some place 
where it could be better treated ; and if there were no such 
places, as was the case in the middle ages, then it would hide 
itself in holes in the ground, or other secret places, as it does now 
in Turkey and Egypt — countries where the New Jersey principle 
is especially exemplified, thus narrowing the sphere if it did not 
wholly deprive the laborer of profitable employment. Certainly, 
to borrow an expression of the late H. C. Carey, the activity of 
"societary circulation," the cause of all material development, 
would be greatly impaired under such circumstances. 

The paramount necessity of the hour — whether the masses 
under the education before alluded to, which they have received, 
respecting the blessings of taxation, as yet fully appreciate it 



74 PRACTICAL ECONOMICS. 

or no — is the reduction of Federal taxation, and any political 
party which fails to recognize it will, sooner or later, have rea- 
son to repent of its lack of sagacity. That an abatement of 
one hundred millions in the taxes now annually collected by 
the Federal Government, or one seventh of the entire present 
burden of taxation upon the whole country, can be made with- 
out in any way deranging the national finances or reducing to a 
corresponding extent the national revenues, will not probably 
be questioned. It should not be overlooked, however, in con- 
sidering this whole prospective work of revenue reform^ that the 
question of immediate importance is not so much how large a 
sum shall be abated, but rather by what method shall the 
abatements be effected ; for under the existing fiscal policy of 
the nation, which has been also long continued, many vested 
interests have grown up and been fostered which are entitled to 
the largest and most generous consideration, and which cannot 
be arbitrarily and suddenly interfered with, without occasioning 
such changes in the direction of industry as may work great 
temporary injury to not a few persons. With the most honest 
intent, it will be only too easy for tax reformers to arrest by 
injudicious action the tide of public opinion now setting strongly 
in their favor, while those in favor of maintaining substantially 
the present system would do well to bear in mind, that by 
resisting moderate reforms at present, and by continuing the 
rapid reduction of the public debt, they cannot fail to ensure 
the sudden enactment of far more radical measures in the not 
distant future. 

So much, then, in the way of exposition of the necessity of 
prompt and large reductions in the number and amount of 
Federal taxes. It is proposed to next ask consideration to the 
methods by which an abatement of taxes may be most safely and 
judiciously effected under the tariff — the department of revenue 
in which abatements are most urgently needed. 

The tariff of the United States as it now exists, and con- 
sidered entirely apart from any economic policy which it may 
be intended to subserve, is a disgrace to our civilization. The 
honor of the nation, the interests of ordinary morality, the 
necessities of business, and the claims of civil-service reform, 
all alike demand that it be reconstructed with a view to simpli- 



TARIFF REVISION. 75 

fication and intelligibility. If it be replied that this is the lan> 
guage of a partisan and a theorist, we would ask, if it is not a 
libel on good government, and an outrage, that constant suits 
at law and appeals to the Treasury on the part of merchants 
should be made necessary — some i8,000 of which are now 
reported as on file — in order to settle the meaning and con- 
struction of the mere words in which the statutes imposing the 
rates of duty have been expressed? That, in deciding upon the 
rates of duties to be imposed upon certain fabrics, the differ- 
ence of a shade of blue or brown, or the weighing in a damp 
atmosphere, makes the same quality of merchandise just enough 
heavier to turn the scale and largely augment the assessment of 
the duty; that a constant espionage of the mails and an exami- 
nation of the contents of sealed letters is necessary to protect 
the revenue; and the mere misplacement of a comma, as in the 
case of a former tariff enactment in respect to dried fruits, 
makes a difference of hundreds of thousands of dollars in the 
receipts of the Treasury. 

France has a tariff of the kind needed in the United States, if 
its taxes are to be imposed on many articles, embodying the pro- 
tective policy : extensive, but so scientifically constructed as to be 
almost free from ambiguity or the possibility of misinterpretation. 
The Walker tariff of 1846, the best tariff in respect to administra- 
tion and adaptation to the end designed which the United States 
has ever had, was a model of simplicity and conciseness. It 
was not an attempt to amend anything that had previously 
existed, but was an original construction, framed after much pa- 
tient inquiry, with the aid of the best experts, and recognized the 
ad-valorem system exclusively; all imports subject to duty being 
arranged in eight alphabetically designated classes, to each one 
of which an ad-valorem rate was assigned, ranging from 5 to loo 
per cent. To attempt to now reconstruct the tariff as a Avhole, 
and make it simple and harmonious, we must, it would seem, take 
either the French or the " Walker" system as a model. To at- 
tempt to do it on the principle that has alone been recognized 
since i860, namely, that of establishing a separate and varying 
rate for every article or limited class of articles, and endeavor- 
ing at the same time to balance the reciprocal relations of a mul- 
titude of industries and make compensation to each for a pro- 



76 PRACTICAL ECONOMICS. 

gressive and unequal taxation of its respective elements, is im- 
possible, simply because it would demand superhuman knowl- 
edge to do it. A volume almost might be written full of 
incidents which would be most amusing if they had not been 
often most disastrous, of influences unexpected (even by those 
well acquainted with the subject) and most remote in their effects, 
which have been the result of attempting to impose tariff taxes 
in this country in this manner. Hence those who know most of 
the tariff are, as a rule, the most conservative and the least 
inclined to advise radical and arbitrary legislation. But what 
chance is there for a commission not more than two members 
of which bring any fund of previous knowledge to their work, 
and whose attention has been mainly occupied with statements 
submitted, as Adam Smith once expressed it, " with all the pas- 
sionate confidence of interested falsehood," of reporting any 
complete yet simple and intelligent system? As well expect an 
equal number of well-meaning, moderate men, as the result of six 
months' desultory experience, to be able to revise an intricate 
code of civil or criminal law, to make a geologic survey, or lucidly 
expound the best method of managing a complicated competitive 
railroad system. Or supposing, by some gift of inspiration, 
they were able to submit such a report ; what chance would there 
be for its adoption by Congress? A single amendment, offered 
by some member whose main interest in the tariff was to know 
what some influential and selfish constituent desired, might prove 
as destructive of all harmonious adjustment and working as 
would the interposition of some rude fragment of wood or metal 
among the delicate wheels and levers of some nicely constructed 
machinery.' 

' As an illustration of the difficulties unavoidably connected with the control 
or direction of economic or fiscal legislation by men whose ideas of trade and 
commerce have been largely gained by an experience of selling nails by the 
pound, molasses by the quart, and tape by the yard, the following story may be 
related: By the act of June 30th, 1864, the duty on imported bituminous coal was 
fixed at $1.25 per ton. By the act of 1873 this duty was reduced to 75 cents per 
ton. A merchant of Boston interested in the coal-mines of Nova Scotia, hap- 
pening to be in Washington shortly after the change in the law, called on a pro- 
minent member of Congress who had been instrumental in effecting the reduc- 
tion, with a view of expressing thanks to the latter for his action and vote. In 
the course of the conversation which ensued it was incidentally mentioned that 



TARIFF REVISION. 77 

It seems, therefore evident that no general reconstruction of 
the tariff is possible at present, or even in any not distant future ; 
and that no general propositions for relief from the abatement of 
excessive taxation in this department of our revenue are likely to 
be ever entertained, except for an increase of the free list, 
and a recognition of the principle embodied in the celebrated 
" Compromise Tariff Act" brought forward by Henry Clay in 
1832, under political and industrial circumstances not unlike 
what exist at present, and subsequently adopted by Congress: 
which provided in the main for a reduction of 10 per cent in all 
duties in excess of 20 per cent at three successive intervals of 
two years. 

A United States Senator from Massachusetts — Mr. Hoar — 
has been pleased to say of this latter method '' that there never 
came out of a lunatic asylum propositions so monstrous, so in- 
defensible, so destructive," and that its adoption " will be to 
create a business revolution not equalled " by anything in our ex- 
perience. But such assertions may be passed by as the utter- 

the Washington Capitol building itself was lighted with gas derived from the 
very Nova Scotia coal which had been mainly affected and cheapened by the re- 
duction of the duty in question. Some surprise being manifested by the Con- 
gressman that such should be the case, the merchant explained its happening in 
this wise : Small vessels sailed in the first instance, mainly from New England 
10 ports of the British North American Provinces, laden with miscellaneous 
freights — furniture, hardware, glass, coarse textiles and carpets, drugs, medicines, 
paper, machinery, etc. — the product of our domestic industries. These shipments 
directly or indirectly paid for Nova Scotia coal, especially adapted to the econo- 
mical manufacture of gas, which coal was then transported in American bottoms 
to the Potomac and sold to the Washington Gas Company. A cargo being unload- 
ed, the vessel was immediately reloaded with coal from the Cumberland mines of 
Maryland, especially desirable for blacksmithing or steam purposes, which coal 
in turn was transported and sold in the Boston market; and the circle of ex- 
changes being thus completed — each movement of which brought profit to Amer- 
ican labor and capital, and enlarged the sphere of employment for our merchant 
marine — a new and similar series of commercial transactions were at once en- 
tered upon with the same recurring results. To all this the only reply which the 
Congressman vouchsafed to make was, "Well, I had no idea that Nova Scotia 
coal could be used in Washington. Had I been aware of it I certainly should 
have voted against the reduction of duty. I think I made a mistake in voting 
as I did." And this story is true, almost literatim et verbatim, and the Con- 
gressman in question still holds his seat in the national halls of legislation and is 
never weary about talking of the necessity of encouraging our domestic indus- 
tries. 



y^ PRACTICAL ECONOMICS. 

ances of an intellectual crank who has persuaded himself that 
the continual taking of excessive portions of the product of the 
labor of the masses under the name of taxation, and using a 
large part of the taking for extravagant expenditures, is equiva- 
lent to the creation of wealth. The argument that successive 
percentage reductions of the tariff would compel the manufac- 
turer to conduct his business for a series of years on a falling 
market is more rational. But if it has any value at all, it is con- 
clusive against all reductions of taxation. The real objection to 
the Clay " compromise" plan is that it gives little or no immediate 
relief from the present burden of tariff taxes, and practically will 
not reduce the revenues. Its recommendations are that it will 
work no real injury to any one, will be in the nature of a tenta- 
tive experiment, and a positive step in the right direction, and, 
apart from general action, in accordance with the two plans above 
mentioned. The only further method for reducing and amending 
the tariff that would seem to be possible is that of taking up and 
considering its multiplied provisions in detail, and legislating 
separately in respect to the numberless articles or classes of ar- 
ticles taxed ; having reference in so doing to two points : first, 
the reduction of national taxation ; and second, of making such 
reductions, severally and in the aggregate, instrumentalities for 
cheapening the cost of all domestic production and of living, 
enlarging the market for our manufactured products, widening 
the opportunities for the employment of labor, and bringing 
back to its former status our now all but extinct merchant 
(ocean) marine. And in respect to this latter point. Prof. Sie- 
mens, in his recent address before the British Association, tells 
us that the time is near at hand when there is to be a revolu- 
tion in the construction and propulsion of ocean ships analogous 
to what occurred when iron was substituted for wood, and steam 
for sails ; a statement which may be construed as saying to the 
United States, " You are to be relieved, by the progress of in- 
vention and discovery, from your present disabilities in respect to 
equipment for prosecuting the ocean carrying trade, and may 
have an equal chance in starting against all competitors under 
the new conditions, if you will only not continue to neutralize 
the inventive skill and business enterprise of the nation by the 



TARIFF REVISION. 



79 



creation and maintenance of artificial obstructions in the path of 
progress." And with a view of aiding in this work, it is proposed 
to next submit some points that maybe worthy of consideration 
on the part of Congress and the pubhc. 



TARIFF REVISION: ITS NECESSITY AND POSSIBLE 

METHODS/ 

11. 

IN a certain and at the same time correct sense, all loyal and 
patriotic citizens are* ultra-protectionists. That is to say, 
every American with one spark of patriotism and national loyalty 
in his composition prefers the interest of his country to that 
of any and every other country, and is ever ready with heart 
and hand to support every measure that tends to promote the 
development and prosperity of his country and insure the maxi- 
mum of abundance and comfort to his fellow-citizens. But 
altho thus united as a whole people in the desire for a common 
object, the greatest divergence of individual opinion at the same 
time exists in respect to the methods by which such object can 
best be attained. On the one hand, a large number who espe- 
cially arrogate to themselves the title of protectionists (to Amer- 
ican industry) assume by their action, if they do not openly 
proclaim by their speech, that national industrial development 
can be most speedily effected and permanently maintained by 
creating and imposing artificial obstructions — mainly in the 
nature of excessive or discriminating taxes — upon the work of 
producing and exchanging; while, on the other hand, a not in- 
considerable number of citizens, in vicv/ of the great and varied 
resources of our country, the intelligence of its people, their 
wonderful skill in the invention and use of machinery, and their 
readiness to adapt themselves to circumstances, believe with 
equal sincerity that the largest and truest protection to Amer- 
ican industry is to be obtained through the removal to the 
greatest possible extent of taxes and obstructions of every kind 
on the work of producing and exchanging; and that such pro- 

' Princeton Review. 
80 



TARIFF REVISION. 8 1 

tection, if attainable, is certain to be most stable, because it will 
be most simple and natural. It is rather difficult to assign any- 
good reason why those who accept the former of these opinions 
should be always so ready and so uncharitable as to impute im- 
proper motives and eminent lack of patriotism to those who 
believe in the latter. But be this as it may, it must be admitted 
that the present necessity for making large reductions in national 
taxation, for reasons independent of any theoretical considera- 
tions, affords a most excellent opportunity for safely determin- 
ing by practical experiments which of the two methods of pro- 
tection referred to is likely to prove most effective; and with a 
view of helping to such determination and assuming, in accord- 
ance with the deductions of a former article, that the immediate 
work by Congress of abolishing tariff taxation will be mainly- 
confined to legislation in respect to certain specific taxes, it is 
proposed to next ask attention to a review of the condition of 
some of our great branches of industry, and of the requirements 
essential to give them a further healthy growth or extension; 
the first example selected being that of the Manufacture of 
Cotton. 

This industry ranks third or fourth in importance among the 
manufacturing industries of the country. It has been long es- 
tablished, enjoys special advantages in the supply and cost of 
its raw material, and produced goods in 1880 to the value of 
$192,773,000. In 1879 3- representative of TJie British Textile 
Manufacturer (a trade journal of established authority), thor- 
oughly qualified for his task, visited the United States for the 
purpose of ascertaining through extensive personal investiga- 
tions what the British cotton manufacturers had to fear from 
American competition in the world's markets. He reported to 
his employers in December, 1879,' ''that in the matter of wages 
America is as cheap as England." (The census returns show 



' It is somewhat curious that this report, which was not private and is one of 
the most interesting of recent economic publications, seems to have wholly 
escaped the attention of the multitude of writers and speakers, in Congress and 
out, who have discussed the question of the relative wages of the United States 
and Europe. It was, moreover, not even alluded to in the recent report on 
wages issued by the Treasury and State Departments, in response to a call by 
Congress for information on this subject. 



82 PRACTICAL ECONOMICS. 

that the average wages paid to the hands employed in the cot- 
ton manufactures of the United States for 1880 were $245.47 
per annum. The best available statistics for the United King- 
dom for 1882 make the annual average for British cotton-spinners 
and weavers a trifle over $250. See also U. S. Consular Reports 
for 1882, to the same effect.) The average relative cost per pound 
of manufacturing print cloths was returned, with full data for 
verification, at 11.99 cents for Rhode Island, 12.16 for England, 
13.72 for Lowell, and 15.59 ^^r Pennsylvania. It is also most 
interesting to note, in connection with this matter, that while 
this English reporter shows the cost of cotton manufacture 
(print cloths) to be less in New England than in Pennsylvania, 
the U. S. census for 1880 shows that the general average wages 
paid in the cotton-mills of New England is about seven per cent 
higher than the general average paid for similar service in the 
whole country. In the matter of weaving, in which department 
the wages paid "amount to as much if not more than all other 
processes combined," the rates in England were found to aver- 
age from 22 to 25 per cent more than in the United States ; 
but as the American weaver (working by the piece) attends to 
more looms and turns out more work per week than his Eng- 
lish competitor, the average earnings of the former are much 
higher than the latter: thus illustrating the economic principle 
that is now beginning to be recognized, that where machinery is 
employed to any great extent in the work of production, high 
rates of wages and low cost of production are correlative results. 
The advantages enjoyed by American over English spinners 
were further reported to be " that people in America work 
longer" (on an average, 66 hours per week, or within a fraction 
of an entire working day each week more than is allowed by 
law in Great Britain); attend to their work better; drink less; 
are less influenced by trade-unions ; and have the necessaries of 
life cheaper. In the matter of raw material the English expert 
showed that American cotton manufacturers have a decided ad- 
vantage over the English to the extent of 0.7 cents or -|d. per 
pound. American experts fix this advantage on our coarser 
cotton fabrics at " not less than one half cent and oftener three 
fourths of a cent a pound ;" which in turn is said to represent 
an ability on the part of the manufacturer to pay at least 20 per 



TARIFF REVISION. 83 

cent higher wages, and yet produce a given kind of cloth at an 
equal cost with English competitors. It is also asserted by ex- 
perts that the question as to what cotton manufacturers shall 
supply the bulk of the world's consumption is likely to turn on 
as small a margin as an eighth of a cent a yard. Under these 
circumstances the United States has long ceased to import 
the goods necessary to meet the wants of the mihion, but does 
import very largely of such finer cotton fabrics as depend mainly 
on style and fashion for their use ; the value of the total impor- 
tations for the fiscal year 1881-2 being $34,351,000, an increase 
over the previous year of about ten per cent. Of these imports, 
$7,501,000 represented hosiery, shirts, and drawers; $2,257,000 
jeans and drillings; and $22,164,000 goods not specially enume- 
rated, mainly fine fabrics and fancy articles. On the other 
hand, in the matter of supplying foreign countries we do not 
transact as large a business as we did twenty-two years ago. 
The United States has never exported as much as 150,000,000 
yards in any one year ; while Great Britain exports year in 
and year out nearly five thousand millions of yards, or its 
equivalent. In 1880 we exported raw cotton to all countries to 
the value of $239,000,000, and thought we did a big business ; 
but during the same year Great Britain, besides supplying her 
own domestic consumption and with a general depression of her 
industries, exported 'manufactures of cotton to the value of 
$377,000,000. In the business of making cotton goods for ex- 
port, altho, in addition to other advantages, we are by natural 
location a cheaper distributing centre than England for a large 
part of the world's consumption, we may be said to have as yet 
but barely scratched the ground. Now what more important 
matter could claim the attention of Congress and the country 
than the ascertainment of the reason of this remarkable indus- 
trial condition of affairs? What better starting-point of inquiry 
for a national commission authorized to investigate the relations 
of the tariff to the varied business interests of the country? In 
most other countries this matter would be considered of sufifi- 
cient magnitude to warrant the creation of a commission for its 
special investigation and nothing else. New England ought to 
take the greatest interest in having such an investigation ; for 
just as bright, sharp Yankees, just as skilled in the construction 



84 PRACTICAL ECONOMICS. 

and use of machinery, are now scattered all over the West, the 
South, and the Pacific States, as still live within her borders ; 
and these men, prompted by self-interest, have constantly the 
objective before them of emancipating their own sections from 
dependence on New England for supplies of manufactured pro- 
ducts. And if current reports are to be accepted, the day is 
close at hand when the South will seriously break in upon New 
England's present prerogative of supplying the bulk of the 
domestic consumption of coarse cotton fabrics, and compel 
the latter, if she would continue her industrial growth or even 
maintain her present status in this department of production, to 
seek for other and larger markets than she now enjoys. Could 
the United States participate in the existing cotton-fabric ex- 
port of Great Britain to the extent of only one third, we could 
at once greatly increase the number of our spindles, give em- 
ployment to at least one hundred thousand additional opera- 
tives, plant factories beside many a now unutilized water-power or 
coal-mine, and render much substantial help in the way of resus- 
citating our commercial (ocean) marine. Experts tell us, more- 
over, that there are from five to eight hundreds of millions of 
people outside of Europe and the United States who are clothed 
mainly in cotton manufactured by slow and toilsome hand pro- 
cesses. One skilled female operative in a first-class American 
factory can produce more and better cloth in one day than the 
most skilled of these hand-loom workers can in fifteen or twenty 
days. Could we reach one half of these consumers we should 
need forty million spindles in addition to our present eleven 
millions, and 600,000 operatives more than our present 185,000. 
Under such circumstances what folly it is to talk about relative 
wages; as if any hand product of even the poorest paid labor of 
China or India could compete with our machinery : and of what 
importance it is that we should study and arrange our system 
and our instrumentalities for foreign commerce, so that the 
pauper labor of other countries could be induced to give us 
something satisfactory in exchange for the products of our 
machinery; and how much longer are we as a nation, in obe- 
dience to ''wrong end foremost" notioas of protection, to let 
this enriching opportunity of exchanging with " foreign paupers" 
slip out of our hands? 



TARIFF REVISION, 85 

The result of such an inquiry would probably be in accordance 
with the conclusions at which most American investigators have 
for some time arrived ; namely, that the tariff has ceased to 
be a factor of the slightest importance in determining the source 
of supply of the great bulk of the cotton fabrics required for the 
domestic consumption of this country, and that American manu- 
facturers would fully control this supply were every tariff enact- 
ment at once swept from our statute-books; but that, on the 
other hand, the existing tariff and our navigation laws con- 
stitute an almost insuperable obstruction to the command 
by the same manufacturers of any other than the domestic 
market. The opinions of the English expert on this point, as 
expressed in the report to which reference has been made, 
were as follows: "The general impression made upon me," he 
says, "by what I saw of cotton manufacturing in the United 
States is that at present England has little to fear from its 
rivalry, but that it lies in the hands of the people of America to 
make a considerable change in the state of things, whenever 
they think proper. While, however, the American nation heaps 
duties upon the import of foreign machinery, thus increasing 
the cost of mill construction, and in other ways by her tariff 
arrangements artificially raising the cost of production, Ameri- 
can manufactures will continue too high in price to compete 
with English goods in all but exceptional instances. America 
is a world in itself, and she would continue to prosper, tho 
in a less degree, if the old world disappeared. So long as her 
population increases in as great a proportion as her manufac- 
tures, so long will her manufacturing industries flourish ; but the 
time will come when her factories will turn out more clothing 
material than the Americans can wear. She will then feel her 
isolation." These conclusions must commend themselves to 
every impartial reader as true. But it would, nevertheless, be a 
most profitable thing if a national commission, fully command- 
ing the confidence of the country, could thoroughly investigate 
this problem in all its details, and report. 

Relation of the Iron and Steel Industries to the Tariff. — As the 
domestic manufacturers of iron and steel, at least of the primary 
forms of these articles, always have been, and now are, a most 
potential element in determining the nature of the tariff of 



86 PRACTICAL ECONOMICS. 

the United States, it will be interesting and perhaps profit- 
able to ask the attention of the public to a line of fact and rea- 
soning in the interests of those who use iron and steel as the 
raw materials of their industry, and of the ultimate consumers 
of these articles, who outnumber the primary workers in the 
ratio of thousands to one. 

And first it is to be noted that the system of protection 
— meaning thereby the imposition of a duty upon a foreign pro- 
duct with a view of making it for a time more costly, and so 
promoting or sustaining the business of making such product 
within the limits of the United States — has ceased to protect 
American labor in the iron-mines, iron and steel works, and roll- 
ing-mills of this country, if in truth it ever did so. In proof of 
this assertion, which to many will seem utterly audacious and 
unwarranted, it may be stated that the census reports recently 
made by Prof. Pumpelly in respect to iron-mining, disclose the 
fact that there were in the census year 1880, 31,668 persons en- 
gaged in this branch of American industry, to whom aggregate 
annual wages were paid of $9,538,1 17. It further appears, from 
the census investigations made by Mr. James M. Swank, that 
there were also employed during the year 1880 in all the iron 
and steel works of the United States, in converting ore into 
pigs, bars, plates, ingots, and rails, 140,978 persons, whose annual 
wages amounted to $55,476,785. The whole number of persons 
employed in these two departments of our iron and steel indus- 
tries was therefore 172,646, and the sum of all the wages paid 
them during the census year was $65,014,902. Assuming the 
force — made up mainly of adult men — to be employed three 
hundred days in the year, their average earnings in the census 
year, which was a year of great prosperity in the iron and steel 
industries, amounted to $375 for each workman, or almost ex- 
actly $1.25 per day ; a rate which every one knows is only a fair 
average for the most ordinary labor in other employments, and 
is much less than is paid on the average to workmen in machine- 
shops and other branches of industry in which iron and steel 
constitute a large part of the raw material. (The average wages 
for the most common labor in 1874 [see Young's "Labor and 
Wages," pp. 739, 743] were $1.53 per day in New York, $1.58 in 
Illinois, $1.75 in Michigan, $1.50 in Missouri. For experienced 



TARIFF REVISION, 8/ 

farm-labor the average per diem in the Western States ranged 
from $1.48 in Ohio to $1.75 in Michigan.) It is therefore a 
matter of absolute demonstration that "protection did not pro- 
tect" the laborer in these departments (iron and steel) of our do- 
mestic industry during the census year; and further, that it is no 
advantage for him to be encouraged to remain in this kind of 
work, and for the sufficient reason that he can earn as high or 
higher wages in other employments of a more desirable and 
attractive kind. That there would be no difficulty in finding 
other employments, perhaps of a better kind (all things consid- 
ered), than this work for this whole force of laborers in question, 
would seem to be proved by the circumstance that their aggre- 
gate number is less than one fifth of the number of immigrants 
who landed on our shores during the past year, — all of whom, 
certainly all of the more enterprising, appear to have speedily 
found employment ; and it is probable that their average daily 
wages were not less than $1.25 per day. 

Second. The work of the laborers in the iron mills and works 
of the United States during 1880 resulted in the production of 
3,781,021 tons of pig metal, and its conversion, when mixed with 
foreign ore and domestic pig, into a proportionate quantity of 
finished bars, plates, ingots, and rails. For the year 1881 the 
American Iron and Steel Association reports that the product 
of pig-iron increased twenty-three per cent, or to a total of 
4,641,564 tons ; and it is well known that this increased quantity 
was not sufficient to meet the demands for domestic or home 
consumption, and that large amounts of iron-ore and of iron and 
steel ingots, bars, and rails were imported from foreign countries. 

Third. The American iron and steel manufacturers (the manu- 
facturers of Bessemer steel excepted) almost unanimously and 
constantly represent that the manufacture of common iron — pigs, 
bars, and rails — has not been unusually profitable, or not more so 
than other branches of industry. On this point the American pub- 
lic have no direct and certain knowledge ; but it is not to be pre- 
sumed that the iron-masters have put forth intentionally false 
statements. If, then, the average rate of earnings of the workmen 
in these departments of our domestic industry have only been 
equal to those of the most common labor outside the mines, the 
furnaces, and the mills; and if it be also true, as the iron-masters 



'88 PRACTICAL ECONOMICS. 

themselves allege, that there has been no realization of profits 
above the average in their business, it clearly follows that pro- 
tection has ceased to protect either labor or capital in the in- 
dustry under consideration, however it may have been in times 
past. And this being admitted, the conclusion is warranted that 
the excess of price, in consequence of protective duties, which 
the consumers of the United States have paid for iron and steel 
bars and rails over and above their competitors in other coun- 
tries has been so much lost to the people of this country, either 
in useless transportation of ore and coal to furnaces which are 
misplaced, or in useless royalties to the owners of mining lands ; 
or else the iron-masters of the United States are at this late 
period still representatives of an infant manufacture, which they 
are incapable of conducting for want of knowledge, and in 
which they ask to be sustained at public expense. The above 
general remarks as to profits may not, and probably do not, 
apply to very many iron and steel works that are well situated, 
especially to such as are west and south of the Alleghanies; for 
the testimony is conclusive that pig-iron has been m.ade at many 
places in these localities at a cost — including all charges for royal- 
ties, for ore, for coal, for depreciation and wages — ranging from 
$12 to $15 per ton, and even less. One iron-master who recently 
appeared before the Tariff Commission at Nashville (Col. Shook) 
testified that the cost of the manufacture of pig-iron in Ten- 
nessee was $15 per ton. Near Birmingham, Alabama, the cost 
is represented as between $12 and $13; and at Chattanooga as 
between $11 and $12, Now such works as these, it must be 
apparent, cannot be protected and need no protection of any 
tariff of duties against foreign competitors; and simply for the 
reason that they enjoy so large a measure of protection in their 
distance from the sources of supply of British iron as to be 
entirely independent of all artificial encouragements. It some- 
.times occurs that iron is brought across the Atlantic at a 
nominal charge, but it may be assumed that the cost of bring- 
ing iron from the works of England and Scotland to the 
Atlantic ports of the United States is, on the average, about one 
pound sterling, or $5, per ton. Thence to further transport it 
either to the iron centre of Ohio or to Alabama will cost at least 
half a cent a ton per mile, or $3.50 ; and much more to the 



TARIFF REVISION. 89 

neighborhood of the iron-works of Missouri. In other words, 
the protection of distance whicli the iron mines and works west 
and south of the Alleghanies now enjoy is greater than the 
entire sum of wages paid for making pig-iro7i in these works. In 
fact, the cost of bringing the iron produced in- the United 
States during the census year 1880 from Great Britain to the 
centre of population of the United States would have been at 
least $8.50 per ton, and at this rate would have amounted to 
more than one half the entire sum of the wages paid in all the 
iron-mines and iron and steel works of the United States for 
that year. In view, then, of this demonstrated failure of the 
attempt to protect either labor or capital in the iron-mines and 
iron-works of the United States by means of the imposition of 
heavy tariff taxes upon foreign imports of iron and steel, and 
the consequent large increase in the cost of such products, is it 
not clearly for our national advantage to entirely remove alJ 
such taxes in order that the people of the country may hence' 
forth be able to purchase iron and steel at prices which shall not 
be relatively much higher than the prices which are paid by our 
industrial competitors in other countries ; such taxes, further- 
more, being no longer needed for the purpose of insuring rev- 
enue? It is not to be denied that the prices of iron and steel, 
especially the prices of Bessemer steel, have been greatly re- 
duced in this country within a comparatively recent period. But 
the same reductions have taken place in other countries, and in 
even greater measure ; and it should not be overlooked that it 
is the prices which we pay at any given time for the materials 
which we use in our manufacturing industries which is of prime 
importance to us in considering what are to be our relations to 
the commerce and markets of the world, — which prices may be 
lower than they were ten, fifteen, or twenty years ago, both here 
and elsewhere, and yet be relatively much higher here than in 
any other countries. And of one other thing we may certainly 
feel assured, and that is if we, by our fiscal policy and taxes, 
keep up the prices of our raw materials, especially iron and steel, 
so that they continue to be relatively higher than the prices 
prevailing in other countries, we must abandon all hope of 
supplying the world to any great extent with the products of 
our labor, and the demand for the products of our industries 



9° PRACTICAL ECONOMICS. 

will, as now, continue to be limited to the relatively small area 
of our territory. 

In the above review the manufacture of Bessemer steel has 
been excepted. But the following is what an analysis of the 
census retunns of 1880 tell us respecting the relations of the 
tariff to wages and product in this industry: Value of product 
(Bessemer and "open-hearth steel"), $55,805,210; tons of all 
kinds produced, 983,039; hands employed, 10,835; aggregate 
wages paid, $4,930,349. A little application of arithmetic will 
now show that the ratio of wages to returned value of product 
was only 9 per cent ; and that the amount directly paid out in 
wages was but a trifle in excess of $5 per ton. And yet, mainly 
on the score of protecting labor, a tariff tax is imposed on the 
import of Bessemer-steel rails of $28 per ton. 

So much for the present relations of the iron and steel in- 
dustries of the United States to the existing tariff. It is pro- 
posed next to take a " look ahead " and endeavor to forecast 
what would happen if all the tariff taxes which now obstruct 
the importation of iron and steel from Great Britain into the 
United States were at once entirely removed ; a proceeding 
which most people in the United States would probably regard 
as in the nature of an unmitigated national calamity. The 
present production of pig-iron in the United States is now 
nearly five millions of tons (4,641,000 tons in 1881), and in Great 
Britain (our chief competitor in supplying the commerce of the 
worldya little more than eight millions of tons (8,377,000 in 1881). 
The immediate effect of a removal of our tariff taxes on iron 
and steel imports would be a very heavy demand upon the iron- 
mines and iron-works of Great Britain for a large additional 
supply. (The American market at present absorbs about 30 per 
cent of the English, Belgian, and German export of iron ; and 
of all the iron-producing countries of Europe the net export of 
none, with the exception of Great Britain, is very considerable. 
The production of pig-iron for the United Kingdom is reported 
by the " British Iron Trade Association," for the half year end- 
ing June 30, 1882, at 4,241,245 tons, and the consumption for 
the same time at 4,339,392, which was 496,271 tons in excess of 
the consumption for the corresponding period of 1881. The 
stock of pig-iron on hand in Great Britain on the 30th of June, 



TARIFF REVISION. 9 1 

1882, was also reported as nearly 100,000 tons less than on the 
30th of December, 1881.) If we could only maintain our 
product where it is (which we probably could in virtue of 
natural protection), without increasing it, and call upon Great 
Britain to supply the increase which we should need, year in 
and year out, over and above our present consumption — a 
consumption, which prices made relatively, if not absolutely 
cheaper, would inevitably increase — it would be impossible for 
the iron-mines and iron-works of Great Britain to respond to 
such a demand without instantly occasioning an effect ; first, 
upon the prices of British iron in the state of pig, bar, and rail ; 
second, upon the wages of those who work the British mines, fur- 
naces, and rolling-mills; and third, upon the demand of Great 
Britain on this country for agricultural products, inasmuch as 
the iron-workers of Great Britain are even now as largely fed 
from the products of the prairies of the West as are the iron 
miners and workers of the United States : and in the case of 
Pennsylvania to an even greater extent, as the capacity of this 
latter State to feed her own working-people is much greater than 
the capacity of the iron districts of Great Britain in a like 
respect. Then in place of an artificial protection (uncertain in 
its bearing and effect), such as it is claimed that the laborers in 
the iron-mines and iron-works of this country now enjoy through 
our tariff, a natural protection w^ould be established for them 
through the augmentation of the wages or earnings of their 
fellow-laborers abroad, without decreasing their own ; for it 
would be obviously impossible to diminish the wages which the 
American iron miners and workers now receive below the level 
of common labor outside of the works in which they are em- 
ployed — which wages, as before shown, average only $1.25 per 
day, or less than the average wages which the farmers of the 
West pay the labor which successfully competes through its 
products with the poorest-paid labor of Europe and the world. 
Furthermore, when this additional demand had thus raised the 
prices of iron in Great Britain and increased the wages or earn- 
ings of the English operatives, the cost of iron to English con- 
sumers would be much greater and the relative advantages which 
the persons who use iron in Great Britain — the builders of 
machinery, steamships, etc. — now enjoy, would be done away. 



92 PRACTICAL ECONOMICS. 

The use of iron in this country would greatly and rapidly in- 
crease ; we should at once realize and enjoy the enormous 
natural advantages which we possess, growing out of the cir- 
cumstance that our iron and coal mines are much more easily 
worked and at a cost of much less labor, measured by day's or 
hour's work, than the English mines can possibly be ; and 
through the speedy attainment of larger markets we should for 
the first time turn to full practical account our acknowledged 
skill in using iron and converting it into machinery, hardware, 
agricultural tools and implements, and a vast variety of other 
metal products which the world demands and in which supply 
we yet have as a nation so very little share. Then would follow a 
transfer of the control of the iron markets of the world from 
Great Britain to the United States; and the transfer of the 
control in the working of this imperial metal implies supremacy 
in the world's commerce and an industrial aggrandizement of the 
nation that the most enthusiastic of American orators have as 
yet scarcely dreamed of. And furthermore, if in the readjust- 
ment of duties as proposed, any laborers engaged in the primary 
production of iron and steel should temporarily find themselves 
displaced from employment, and should prefer a continuance of 
the same kind of work, the ranks of those who are the users of 
iron and steel as raw materials will be readily opened to receive 
them ; inasmuch as the number of the latter, already far in 
excess of the former, will not only all be wanted, but will also 
be largely increased as soon as a full and unobstructed supply 
of the raw material of their industry is assured to them.' 

* The circumstance that the present (December. 1882) capacity of the furnaces 
and rolling-mills of the United States for producing iron and steel in their primary 
forms is probably largely in excess of the present ability of the country to con- 
sume, and that trade in Pittsburgh and the great iron centres "is gloomy and dis- 
appointing," is no argument against the policy here advocated of removing all 
duties from the importation of iron and steel, but rather an argument of great 
weight in its favor. Thus, the revival of business in 1878 and the subsequent 
large extension of our railroad system created a large demand for iron and steel; 
and the free supply of these articles being obstructed by tariff, their prices greatly and 
abnormally advanced, thereby excessively and unnecessarily taxing all the other 
industries of the country: Bessemer-steel rails, for example, rising from $42 per 
ton in February. 1879, to $85 per ton in February, 1880, and pig-iron from an 
average of $i7f per ton in 1878 to $28^ per ton in 1880. The realization and 
prospect of excessive profits next stimulated an unhealthy increase in the " plant" 
or instrumentalities for production; and as production has gone on, supplies have 



TARIFF REVISION. 93 

Is the picture thus presented overdrawn ? The majority, not 
yet sufficiently educated to appreciate our capacity and readi- 
ness as a nation for industrial independence, and the strength 
and development which will inevitably attend and follow the 
emancipation of our industries from taxes and obstructions, will 
doubtless answer in the afifirmative. But be this as it may, 
those who indulge in such forecastings of our possible industrial 
future, to be attained through a revision of our national fiscal 
policy, are surely not justly liable to the accusation of being 
the representatives of foreign interests, altho they may be 
to that of being enthusiasts. On the other hand, consider some 
points of a reverse picture. 

The representatives of the iron-ore-mining interests in the 
United States have recently agreed to ask of Congress an in- 
crease in the duties imposed on the importation of foreign ores. 
Per contra, the domestic manufacturers of iron assert that the 
use of the foreign in conjunction with the American ores of 
iron is of the highest importance, inasmuch as the admixture 
improves the quality of the resulting product, obviates a neces- 
sity of importing the foreign ores worked up into higher forms, 

rapidly increased, until, with the first check in business activity, they have become 
in excess of demand: all of which has induced in turn such a severe competition 
and reduction of prices that the manufacturer, on the one hand, now finds himself 
threatened with not merely a loss of profits but also of capital, and the laborer, on 
the other hand, with not merely a prospect of reduced wages, but also with an ex- 
tensive limitation of his opportunity for labor. It has been intimated, and probably 
with truth, that the strikes in the iron-mills of the country during the past summer 
have proved a blessing to the mill-owners. But be this as it may, it is clear that, 
bad as the condition of the mill-owners now is, it would have been worse had it 
not been for the strikes. All this experience, however, is not new, but has been 
characteristic of the industry of the country— and more especially of the iron and 
steel industries— for the last thirty years, under the infiuence of frequent modifi- 
cations of the tariff, and also of the war. What the people have gained as con- 
sumers at one time from extremely low prices they have more than compensated 
for at another by the payment of extremely high rates; and what in the way of 
high profits has accrued at one period to the manufacturers has been more than 
offset to him by periodical suspensions of industry, loss of all profits, and impair- 
ment of capital. That such experiences could be wholly avoided is not pretended; 
but it may be claimed that if Government was to cease to interfere through its 
fiscal policy with the natural course of production and exchange, the industrial 
course of affairs would be much more stable; and that any loss resulting from 
abandonment of protection would be as nothing in comparison with the destruc- 
tion of capital and the waste and misapplication of labor that has been and is 
certain to be the result of a continuance of the existing policy. 



94 PRACTICAL ECONOMICS. 

and so, in fact, actually increases the demand and consumption 
of the domestic ores. And the experience of Great Britain, 
where every manufacturer is allowed to freely exercise his own 
judgment in respect to the management of his own business, 
powerfully reinforces this assertion ; for the British iron-smelt- 
ers, with a view of cheapening and improving their product, 
have long been in the habit of largely importing foreign ores, 
altho their domestic supply of other ores is unsurpassed in 
respect to either quality or quantity. The appeal of the owners 
of the American iron-mines for an increase of duties on the im- 
port of foreign ores, even tho the returns from their invest- 
ments are not as profitable as could be desired, simply amounts, 
therefore, to the asking that our ability as a nation to cheapen the 
production of iron, with all the momentous consequences that 
would flow from such a result, shall be further obstructed and 
impaired. And altho, according to the principles which have 
heretofore characterized our protective legislation, it is most 
inconsistent for iron-smelters to oppose the petition of the iron- 
mine owners, the request of the latter is just as unreasonable 
as would be that of a small teamster to be allowed, for the 
furtherance of his own interests, to plant his horse and cart 
directly across the " Broadway" of our large cities to the great 
obstruction of the vast tide of larger interests that ebbs and flows 
through it. In short, if the full supply of foreign ore is any ad- 
vantage to the American manufacturers of iron, the great inter- 
ests of the country demand that they shall have it. On the other 
hand, if American mines, as is claimed, can furnish ores equally 
good and equally cheap, then protection is not needed. That 
some American iron-mines may suffer from the free import of 
foreign ores may be admitted ; but that the domestic ore-mining 
interest in general is likely to be injured by such a policy, or 
needs any further protection than what naturally accrues to it 
from location — the cost of transportation — is not a reasonable 
supposition. And in support of this view attention is asked to 
the following items of evidences. An advertisement has re- 
cently been continuously and conspicuously published in one of 
the New York financial journals, of the organization of an 
American iron-ore company, which states that the company 
controls 5,000,000 tons of iron-ore, and that " contracts are 
offered for 300 tons per day on terms that will, on the comple- 



TARIFF REVISION. 95 

tion of certain railway connections, net the company over $i per 
ton, or $100,000 per annum " (40 per cent) on a total capital 
stock of $250,000. Again, the shipments of ore from the iron- 
mines in the vicinity of Lake Superior have been greater during 
the past year than ever before, and all the mines are reported 
as earning very large dividends. Tracts of land which a few 
years ago would not have commanded a dollar an acre are now 
worth millions. One hundred thousand dollars is said to have 
been refused during the past season for one sixteenth interest 
in the Quinnesic Mine (Michigan), which less than a year ago 
cost the owners $15,000. The moment the price of pig-iron 
rises from any circumstances, that moment the owners of the 
domestic iron-mines, freed in a degree from foreign competition, 
advance the price of ore. When the price of iron greatly ad- 
vanced in the fall of 1879, the price of Lake Superior ore deliv- 
ered at Cleveland, with cheap water transportation, rose to nearly 
the same price as that of pig-iron at Glasgow, Scotland. To the 
mine-owners this advance doubtless seemed a creation of national 
wealth ; but to the consumers of iron, who paid every dollar of 
such advance, the condition of things was somewhat different. 

Again, the manufacturers of iron wire and "barbed iron 
fencing," whose interests are protected by patents to the extent 
of creating a monopoly of production, and whose products are 
especially in demand by the agriculturists of the country, also de- 
mand a continuation of the present duty on the importation of 
foreign competing (steel) wire of from 47 to 65 per cent. Per 
contra, the stock of the principal wire manufacturing company 
in the United States is scarce at 200— par 100— and pays regular 
dividends of 20 per cent per annum. 

In unison with the ore-miners and wire-manufacturers, the 
manufacturers of spool-thread— a department of the cotton 
industry— are of the opinion that the protection of 74 to 78 per 
cent which they enjoy under the present tariff should also not be 
reduced. Per contra, consider the following statement of the 
profits of one of the principal thread-mills in the country, which 
recently appeared in the columns of the newspaper of the town 
where the mills are located : 

"The amount of profits apportioned to the stockholders of the Willi- 
mantic Linen Company this year is $1,432,000, or ninety-five and one half 
per cent on the par value of January i, 1882. The total profits of the 



g6 PRACTICAL ECONOMICS. 

Stockholders for the past three years is $2,525,000, which is two hundred 
and two per cent on the par value of January i, 1880." — Willitnanizc 
(Conn.) Chronicle. 

Now as the general answer which will be made to the above 
statements and positions will be that the existing tariff cannot ^ 
be materially reduced without reducing the wages of labor, and 
that one positive effect of the protective policy has been to 
secure high wages to the American laborer, it seems advisable, 
before further proceeding in this review of the relations of our 
industries to the tariff, to stop and ask attention to a brief exhibit 
of what an analysis of the returns of the recent census reveals to 
us on this topic. And first in respect to great primary manufac- 
tures of cotton, wool, silk, iron and steel, and the business of iron- 
ore mining: for the protection of each one of which, high-tariff 
taxes on the importation of all competitive products have long 
been imposed and maintained. 

/-I „„ „< nj „„<■-„. . Hands A verag-e Annual 

Class of Manufacture. Employed. Wages per Hand. 

Cotton manufactures 185,822 $24547 

Silk and silk goods, etc 31,337 29188 

Woollen manufactures of all classes 161,000 29305 

Hosiery ard knit goods 28,328 23053 

Iron and steel 140,978 393 51 

Iron-mining 31.337 301 19 

Assuming 300 working days in the year, the average daily 
wages paid in the above industries would be approximately as 
follows: In the manufacture of cotton, 81 cents per day; silk 
and silk goods, 97 cents; wool, $1 ; iron and steel, $1.31 ; iron- 
ore mining, $1. If these deductions are not correct, the fault 
must be referred to the experts selected by the Census Bureau, 
who professed to make their several returns after careful investi- 
gation. If, however, they are correct, the claim that high pro- 
tection insures high wages is proved to be without foundation ; 
for the annual and daily averages for labor above given are less 
than the averages paid for labor in the great agricultural States 
of the West. 

The following table next illustrates how wages rise in those 
industries which use textile fabrics and iron and steel in their 
primary forms as raw materials — industries which employ a very 
much larger number of laborers, and for the most part cannot 
be, or actually are not, protected by the tariff. 



TARIFF REVISION. 97 

Class of Manufacture. ^ "t"<5^ . Average Annual 

Employed. Wages per Hand. 

Agricultural implements 39- 580 $388 06 

Boots and shoes 138.819' 38100 

Foundries and machine-shops 145,795 454 18 

Men's clothing 160, 8io^ 286 00 

Hardware^ 4>034 424 74 

Carpentering 15,664 544 08 

Furniture-makers 19,656 470 75 

Lumber, planing, etc 3,739 458 53 

The census statistics further show the percentages of labor, 
reckoned in wages, to the total value of the finished products of 
various industries, to be approximately as follows : 

In the manufacture of wool 16 per cent. 

" " " iron and steel 21 " 

" " " cotton 22 "• 

" silk 37 

Iron-ore mining 41 " 

If now the price of foreign fabrics, of cotton and wool, and 
of foreign iron and steel landed in the United States is in- 
creased by reason of freights, commissions, insurance, and pack- 
ing to the extent of 5 per cent, — and if the above-specified 
articles are transported after landing to any considerable distance 
inland, it is at least this, and more, — then it follows that the 
American manufacturers of cotton and v/ool, and iron and steel 
in their primary forms could afford to pay their laborers some 
twenty-five per cent more than is paid by their foreign com- 
petitors and yet be on terms of equality with the latter so far 
as wages enter into and control the value of their products. 
Duties ranging from 30 to 50 per cent and upwards have, how- 
ever, been given under the existing tariff, mainly on the claim 
that they were absolutely necessary to protect the American 
manufacturers against the advantages enjoyed by foreign manu- 
facturers of similar products in the item of wages ; but whether 
such claims have any justification in fact is a matter that may 
be safely left to the judgment of the reader. 

' One fourth women. 

' More than one half women and children. 

^ The analyses for hardware, carpentering, furniture, and lumber working are 
based on the statistics returned from certain of the leading cities of the United 
States and not from the whole country; the latter not being yet obtainable. 



THE MOST RECENT PHASES OF THE TARIFF 

QUESTION.' 



I. 



THE second session of the last or Forty-seventh Congress 
will undoubtedly stand in the fiscal and political history 
of the United States as marking a transition-period in the sen- 
timent of the country in respect to the tariff question of no little 
economic and political importance. With the termination of 
the war and its requirement for vast expenditures, it might nat- 
urally have been supposed that the whole of the vast and oner- 
ous system of taxation which the war made necessary would 
have been promptly reconstructed with a view to the entire 
abandonment or extensive reduction of no small number of 
its burdens; and in the department of internal revenue this 
was indeed done, but very slowly. But in the matter of taxes 
upon imports, from which the largest proportion of the national 
revenues, and the largest sums ever collected by any nation from 
such sources, are derived, not only has there been no reduction 
whatever in the average rates imposed during the war, but on 
the contrary, and in the case of very many articles, the taxes 
have been very largely increased. That such a course of fiscal 
policy, or " the maintenance of war-taxes in time of peace" as it 
has been fittingly termed, should not fail to encounter some 
considerable measure of popular disapproval might also have 
been naturally supposed ; for the popular mind, altho know- 
ing little and caring less concerning economic matters, never- 
theless moves pretty promptly and directly to the conclusion 
that there is an intimate connection between high taxes and 

^Princeton Revieiv, May, 1883. 
93 



THE MOST RECENT PHASES OF THE TARIFF QUESTIOIV. 09 

an increased cost of living and of production. But, singularly- 
enough, this sentiment of disapproval has, until a very recent 
period, been comparatively limited. In the first place, the 
masses, finding it easy, through the great natural resources and 
rapid development of the country, to obtain employment and a 
living, and being also naturally disinclined to reason on such 
subjects, have either allowed themselves to remain indifferent 
or to be easily persuaded into the acceptance of any opinions or 
assumptions that might be plausibly urged upon them. While, 
in the second place, the so-called manufacturing interests of the 
country, accepting almost universally the proposition that the 
maintenance of high taxes upon the importation of nearly all for- 
eign products, and the abandonment of all federal taxes upon all 
similar or competing domestic products, were essential to their 
prosperity, have through their intelligence, social position, and 
large command and use of money wielded an influence in behalf 
of their faith so irresistible, that the prediction has often been 
expressed that nothing could prevail against it until natural 
circumstances forced its representatives to radical differences of 
opinion among themselves. 

The business of dissent from the tariff policy of the federal 
government since the war has therefore been mainly relegated 
(one meaning of which term is " to banish") to a comparatively- 
few persons, and those mainly clear-headed and enthusiastic 
young men, who, as has always been the case in every other 
movement in the Avorld's history for the extension of human 
liberty, have had but the minimum of personal grievance 
to complain of, but whose motive and inspiration, impelling 
to work and sacrifice for the cause they advocated, was sim- 
ply the love of truth and right, for the truth and right's sake. 
To men whose opinions about the tariff are controlled mainly 
by their pocket interests, and indeed to all who have been 
educated to believe that government — which never has any- 
thing in the way of money or property but what it has pre- 
viously taken from the people — can create national prosperity by 
arbitrarily taking the result of accumulated labor from one man 
and arbitrarily giving it to another, such motives appear absurd 
and incredible ; and in default of any other motives that would 
seem reasonable to those thus reasoning, the hypothesis of 



lOO PRACTICAL ECONOMICS. 

organized corruption and thorough disloyalty to American in- 
stitutions has been resorted to, proclaimed, and extensively ac- 
cepted. Hence the statements first made, it is believed, by 
Horace Greeley and H. C. Carey, and since positively re- 
peated and enlarged upon by such men as W, D. Kelley, 
Cyrus Hamlin, president of Middlebury College, Vermont, 
John L. Hayes, late President of the Tariff Commission, and 
many other lesser lights, that the leaders of the cause of " free 
trade," " tariff for revenue only," and " free ships," and the re- 
peal of our navigation laws, receive their inspiration and were 
bought up to do their work through *' British gold;" and that 
organizations for the purpose of raising and disbursing funds for 
such purposes in the United States — as, for example, the Cob- 
den Club — regularly existed and were successfully operated in 
Great Britain. Such statements and assertions up to the present 
time have seemed too silly to require anything in the way of 
positive challenge and denial ; but when a recurrence to and a 
general use of them still constitute a marked phase of the 
current tariff discussion, and seem likely to continue, it may be 
well to here state, for the special benefit of those whose char- 
acter and self-respect, in spite of most decided opinions and 
prejudices, will not allow them to deliberately falsify, first : 

That the transmission on the part of any organization or in- 
dividual in Great Britain or Europe to the United States of money 
or credit, to the extent of a single dollar, for the purpose of aiding 
any free trade or anti-protection movement in the latter country 
is not known to any American representative of such movement 
to have ever occurred ; and the receipt of any such aid by any 
journal or organization advocating free trade in the United 
States, or by any person officially connected with such organiza- 
tion, is not only here unqualifiedly denied, but the ability on the 
part of any one to furnish a scintilla of evidence to the contrary 
is also here positively challenged and disputed. And secondly, as 
respects the Cobden Club, which is declared and extensively be- 
lieved by protectionists to be a foreign propaganda of free trade 
of wonderful activity, and the organization through which large 
sums of money are constantly raised and disbursed for in- 
fluencing public opinion in the United States, the following 
statements are further submitted. This club was founded in 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. lOI 

1866 with the object of encouraging the growth and diffusion 
of those economic and pohtical principles with which the name of 
Richard Cobden is associated, and which are also briefly but com. 
prehensively expressed in the motto which the club has adopted 
and caused to be engraved upon its seal; namely, "-Free Trade, 
Peace and Good Will among Nations!' Altho the headquarters 
of the Cobden Club are in London, it enrolls among its members 
nearly all the leading economists and statesmen of Europe: as, 
for example, Gladstone, Bright, the Duke of Argyle, Sir John 
Lubbock, Sir Charles Dilke, Robert GifTen, Thomas Brassey, and 
James Caird, of England; Leon Say, Leroy Beaulieu, Jules 
Simon, Henri Cernuschi, and Maurice Block, of France; Schulze- 
Delitzsch and Karl Blind, of Germany; Emilio Castelar, of Spain ; 
Frere Orban and M. Laveleye, of Belgium ; Prof. Cossa, Quin- 
tine Sella, and Marco Minghetti, of Italy; and in the United 
States, Pres. Woolsey, Anderson, Gilman, and Gen. Walker; 
Geo. Bancroft, Edward Atkinson, C. F. Adams, Jacob D. Cox, 
H. W. Beecher, E. N. Horsford, E. P. Whipple, and Hugh Mc- 
Culloch ; while on the roll of deceased members are found the 
names of Baron Bunsen, Count Corsi, Leon Gambetta, Michel 
Chevalier, James A. Garfield, John Stuart Mill, L. F. S. Foster, 
Charles Sumner, H. W. Longfellow, R. W. Emerson, Samuel 
Bowles, W. C. Bryant, Francis Lieber, Isaac Sherman, Amasa 
Walker, Samuel Ruggles, Wm. Lloyd Garrison, and others : the 
name of anyone of whom is sufificient proof that no organization 
in which it was voluntarily, continuously, and sympathetically en- 
rolled, could be anything not in the highest degree honorable and 
open in all its transactions to public inspection. The receipts 
and expenditures of the Cobden Club are annually audited and 
published in detail in the leading journals of England; and its 
total income for the carrying out of its plans has never been 
as much in any one year as $15,000; with the single exception 
of 1 88 1, when a special publication fund of $8860 was con- 
tributed, and of which $5140 was appropriated for the publica- 
tion and distribution of works on " Systems of Land Tenure." 
From the regular receipts are defrayed the expenses of an an- 
nual dinner of the members ; the salaries of a secretary and 
clerk ; the expense of medals which the club annually awards 
for the best essays on any subject connected with political 



I02 PRACTICAL ECONOMICS. 

economy by the students of various leading colleges in the 
world (Harvard, Yale, and Williams, in the United States); and 
the publication and distribution of a great variety of books and 
tracts on many subjects, additional to those pertaining specially 
to free trade.' When, therefore, Hon. W. D. Kelley, M. C, de- 
clared, in the political campaign of 1880, that the Cobden Club 
had raised and transmitted to the United States more than a mil- 
lion of dollars for influencing the national election of that year; 
and the Rev. Cyrus Hamlin, a minister of the gospel and presi- 
dent of a New England college, writes in the Journal of the 
American Agricultural Association for November, 1882, that the 
Cobden Club " lias expended vast sums during the last tzvelve or 
fifteen years to incite our {Aniericaii) farmers against the govern- 
ment and our manufacturers ;'' and that " millions of copies of an 
appeal to American farmers were issued" (by it) " and distributed 
all over the land," it is certain that these gentlemen, if they 
claim to be men of honor, have placed themselves in a position 
not a little embarrassing and dishonorable. For they either 
knew or did not knoM"^ whereof they affirmed. If they knew, 
then they were guilty of uttering unqualified and intentional 
falsehoods; and if they did not know, they used words without 
meaning, and recklessly, if not intentionally, deceived their 
hearers or readers.' 

' The following is a more detailed exhibit of the income of the Cobden Club 
since its organization, as derived from its official reports: For the seven years 
from 1866 to 1873 the total income was ;^8204 ($41,020), or at the rate of $5857 
per annum; 1878, ;^I529; 1879, ;i^i825; 1880 (the year of the U. S. Presidential 
election), ;i^2557; and for 1881, £^\bi, of which _i[^io28 were appropriated to the 
publication of works on the subject of land-tenure. Among other works pub- 
lished or distributed by the Club during this same year, when, according to Judge 
Kelley, a million of dollars was appropriated to the United States, were Caird's 
"Landed Interest;" Maclehose's "Value of Political Economy;" Watterson's 
" British Commerce;" "The Financial Reform Almanac;" Apjohn's " Cobden 
and Bright;" Potter's "Workman's Views of Free Trade;" Krebs's " Working- 
man on Reciprocity;" together with reports of meetings, lists of members, ac- 
counts, etc. etc. 

*As further illustrating, notwithstanding the above exhibit, the extent to 
which the Cobden Club has been effectually used as a "bogie" in the United 
States for the raising of money and the controlling of votes in support of high 
protection, attention is also asked to the following extract from the Report of the 
American Iron and Steel Association for the year 1881: "During the Presiden- 
tial and Congressional campaign of last year" (1880) "the Cobden Club of England 



THE MOST RECENT PHASES OF THE TARIFF QUESTION 103 

Recurring to the assertion before made, that the last session 
of the last or Forty-seventh Congress marks a transition-period 
of permanence and importance in the sentiment of the country 
on the tariff question, the following review of the situation would 
seem to forbid any other conclusion. 

Nothing is more sensitive to changes in public opinion than 
the American politician, or more quick to respect them than the 
Federal Congress; and the circumstance that Congress at its 
last session devoted most of its time to a consideration of a 
reform of the tariff, and that the political party dominant in 
both Houses did not dare to adjourn witliout taking some action 
upon it, even tho such action, as it turned out to be, was 
little more than a pretence, is certain proof that the tariff, from 
a merely political point of view, cannot longer be treated, and 
as in former years, with political neglect and indifference. 

Again, no one who has given the subject any attention has 
any doubt that the United States has at present more active 
capital, machinery, and labor engaged in the so-called work of 
manufacturing than is necessary to supply any present or im- 
mediate prospective demand for domestic consumption. And as 
general evidence confirmatory of this position, citation may be 
made, first, of the general and increasing complaint on the part 
of American manufacturers of over-production ; in connection 
with which attention is here asked to the very significant fact 
recently brought out by the N. Y. Public, namely, that while 
the domestic exchanges for the past year (18S2) show a very 
marked increase as respects the manufacturing centres of the 
country, the exchanges at the great distributing centres on the 
other hand show a marked decrease, with accompanying heavy 
losses and shrinkage in business. Second, the interruption of 
great branches of domestic industry, of which examples are to 
be found in the recent suspension of the entire business of 

threw off all disguise, and sought directly to influence the free expression of the 
popular will in many States by circulating large quantities of English-printed 
books and pamphlets which outrageously misrepresented the effects of our pro- 
tection policy," etc. This association promptly undertook the work of counter- 
acting this movement of the Cobden Club, and a series of protective tracts, 
embracing over half a million copies, was printed and circulated in the wake of 
the free- trade publications." 



1 04 PR A C TIC A L E CONOMICS. 

cotton manufacture in Philadelphia and vicinity ; of the dis- 
continuance in all or great part of the India-rubber and gunny- 
bagging manufacture; of the reduction of sugar-refining in- 
dustry to about 60 per cent of its existing capacity; and the 
suspension or failure of some of the most important iron- 
furnaces and rolling-mills of the country. And tJiird, the ac- 
tual or attempted reduction of wages in almost every depart- 
ment of domestic manufacturing industry; the recent united 
effort for this end of the representatives of all the iron-works 
west of the Alleghanies being especially noteworthy. 

Next, a large amount of evidence to the same effect of a more 
specific character, and in the highest degree interesting and in- 
structive, has also recently been made public. Thus, during the 
past winter, a resolution was introduced into the Legislature of 
Massachusetts urging upon the representatives of that State in 
Congress ""the importance of reducing the national taxes and the 
propriety of abolishing as fast as possible {tvithoiit too great 
injury to vested interests) the taxes upon imports, except so far as 
may be necessary for a revenue to meet the prudent and economi- 
cal expenses of the government^ Had such a resolution 
been introduced into this body five or ten years ago it 
would probably have been received with almost as much of 
surprise as a resolution in favor of the re-establishment of 
domestic slavery, and would probably have been as uncere- 
moniously treated. And as it was, had the committee to 
whom the resolution was referred been governed solely by 
their private opinions, a majority, it is understood, would have 
summarily voted " leave to withdraw." But under the circum- 
stances a full and respectful hearing, extending over some weeks, 
was granted to all interested. And to this hearing came, among 
others, Mr. Howard M. Newhall, one of the leading shoe-manu- 
facturers of the famous Massachusetts shoe -manufacturing 
town of Lynn, who gave testimony of such a startling character 
that any discussion of the subject would be incomplete that 
failed to embody its nearly complete statement as reported. 

"I have come before this Committee," said Mr. Newhall, "to present a 
few facts in regard to one specific branch of business interest — a protected 
shoe industry. The shoe industry is the most thoroughly American in 
its parts of any of our great industries. A few 3'ears before i860 few 



THE MOST RECENT PHASES CF THE TARIFF QUESTION. 105 

would have dared to predict that a shoe could ever be made by machin- 
ery, or that in a quarter of a century there would be so many people em- 
ployed in making shoes by machinery as to render the American market 
altogether too small for their industrial capacity. Yet such is the fact. 
In Lynn alone the capacity is three hundred thousand pairs of shoes per 
week, and Lynn is only one great representative of a great many shoe- 
manufacturing centres in New England, New York, Pennsylvania, and the 
West. This is its present capacity, but the power of enlarging this ca- 
pacity is unlimited. This whole system could be duplicated and redupli- 
cated if necessary within a short term of years. With such facilities it is 
very natural that the business should soon outgrow the home consump- 
tion. Where a few years ago it took nine months in each year to shoe 
this country, it now takes but six months, and, with the present increase 
of factories, a few years hence it can be done in less than that time. Of 
course the increase of capacity engenders competition among the manu- 
facturers, and there is a constant incentive to underbid the market to 
secure trade. As in all trade, a low price (often quoted) " sets" the mar- 
ket, and in order to meet the market articles have to be made cheaper at 
the expense of the operatives. If the materials used to make a shoe go 
up in price, labor always has to go down. Strikes result, as that seems 
to be the only way the laborer can protect himself from the encroachment 
of the employer. In a general strike in a shoe-manufacturing centre the 
operatives often gain temporary advantage, but with a supply greater than 
demand it cannot long continue. A shoe-factory is what might be called 
" portable," and when a manufacturer cannot have his own Avay in one 
locality he goes where he can. When he finds he cannot make shoes 
cheap enough in some great centte, he finds some quiet country town 
where he starts a factory and is able to make shoes at less price. His 
city competitor is deprived of just so much work, and is obliged to ask of 
his employes a reduction in wages if they wish to save their work from 
going away. The general sequence of a strike, then, is the establishment 
of country factories, so called, and the sequence of country factories is a 
forced reduction in wages. Every time this programme has been repeated 
in the last few years it has left wages on a lower basis." 

" Gentlemen, do not blame the manufacturer for trying to meet the 
market, or blame the operative for resisting a reduction in wages. It all 
goes to show that the supply is greater than the demand, and that our 
market is not large enough. Perhaps you may wonder how and where 
we are " protected" in our shoemaking. I will mention two or three arti- 
cles specially, and speak of the others generally. Take, for instance, 
serges or lastings. The average duty on the serges or lastings used in the 
manufacture of shoes is 85 per cent. And how many factories do you 
think are protected by this enormous duty ? I know of only two — one at 
Oswego, N. Y., the other at Woonsocket, R. I. I may be in error, but 
these are all which have been named to me, altho 1 have made diligent 
inquiry. As another :\nstance, lake that well-known article, French kid. 



I06 PRACTICAL ECONOMICS. 

or, in fact, kid of any foreign make. Kid requires a duty of 25 per cent 
on the average. French kid costs all the way from $18 to $45 per dozen 
skins, according to the quality. An average skin would cost about $30 
per dozen, and each skin would cut about one pair of shoes. Hence the 
prospective penalty for wearing soft, pliable French kid shoes is sixty 
cents before the process of making the shoe has begun. This appeals to 
our own pockets, but in its broader sense we are at just sixty cents' disad- 
vantage in competition with the rest of the world in that grade of shoe. 
The light, pliable glove-calf of foreign manufacture is taxed by a duty of 
20 per cent. I have selected the serges, kid, glove-calf, which perhaps 
form a sufficient variety to illustrate the argument. In the warm climates 
where we must push our foreign shoe-trade, those of the inhabitants who 
wear shoes require just these very kinds of shoes which have been men- 
tioned. American calf, goat, or grain is too heavy for use in warm coun- 
tries, and if we are to compete with foreign manufacturers we need 
every advantage of competition. Cottons, nails, tacks, buttons, thread, 
all have to be used in the make-up of a shoe, and they are protected. 
The iron from which we make our machinery is protected. If, as is face- 
tiously said, we make shoes of paper, that is protected too. In short, you 
have paid a duty on nearly every component part of the shoe which you 
are now wearing on your foot." 

" America is the home of the shoe-trade. Almost every other large 
manufacturing business was imported, and mechanics had to be taught by 
men who were paid to come here and teach them. But the Yankees in- 
vented their own shoe-machinery, and no one had to be imported to 
teach them now to run it. The best educated factory population in New 
England is that found in your "shoe-towns." They are thrifty, strive to 
own their own homes, and represent the very best side of a working popu- 
lation." 

" Perhaps you may ask what may be the general opinion of the Lynn 
shoe-manufacturers on any question looking toward a modification of the 
tariff. There has been but one organized efifort to test their opinion, and 
that a short time since, when an effort was made to increase the duty on 
India skins from 15 per cent to 25 per cent. A petition was sent to 
Washington, very generally signed by the shoe-manufacturers, protesting 
against any increase; and from this we may judge that they are alive to 
the fact that their next move is toward reduction. 

" A removal of duty from all articles used in the manufacture of a shoe 
would be an advantage to employer and employed. Why, up in Canada, 
and in the provinces, they have been obliged to protect themselves from 
American shoes by a duty of 25 per cent ; and even tho we are having 
to pay a tariff on importation and exportation we are sending as many 
shoes into Canada as ever. This alone proves what our shoe-manufactur- 
ing industry is capable of achieving if it can have a chance. There is no other 
country knows how, or could make shoes as fast and as cheap as the 
Yankees, and all we need is one end of the bargain. If we are able to sell 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. lO/ 

our goods when protected and protected against, if half the disadvantage 
we now stagger under were removed, we could soon push ourselves into a 
place where the world's buyers could not afford to purchase from any 
other market." 

During the year ending March i, 1883, 62 new paper-mills 
have gone into operation, and 37 additional were in course of 
construction. The Paper-Trade Journal thus reports the opin- 
ions concerning the prospect ahead of certain leading members 
of this department of manufacturing industry : Wellington 
Smith, of Lee, Massachusetts, thinks the present supply of 
paper in the United States is in excess of the demand ; that 
prices are lower than last year, and that his mills find it neces- 
sary to suspend one, two, or three days in the week in dull 
times, "giving the help something to live on and keeping the 
organization complete." But as the Springfield Republican in 
commenting on this state of affairs significantly remarks, " if 
this remedy is resorted to frequently, this condition is likely 
to become chronic and somebody projects a new mill to do 
the very work which ought to be done in the idle ' one, two, 
or three days' of the existing mills." William A. Russell, a 
leading paper-manufacturer and a representative of Massachu- 
setts in Congress, says that low water has restricted produc- 
tion heretofore, but "when the old mills are turning out their 
full product, and this new product is placed upon the market, 
we are to see a crowded and restless time among manufac- 
turers." He thinks that even the pulp-makers, "with 15 new 
pulp-mills started during the past year," "will find difficulty in 
marketing their pulp in the immediate future." 

A comparatively few years since the India-rubber manu- 
facturers operated their mills full time all the year through. 
Consumption within the last three years is said to have doubled, 
and to have attained a present annual value of $38,000,000. 
But the capacity of the mills in existence at the same time 
is also reported to be equal to supplying an annual domestic 
consumption of full $60,000,000; and there being no such de- 
mand, the manufacturers have gladly taken advantage of a 
"corner" in their raw material to almost entirely suspend pro- 
duction. 

Gunny-cloth is the name given to a coarse textile used largely 



I08 PRACTICAL ECONOMICS. 

for cotton baling and other bagging, and manufactured from 
the coarse, cheap fibre of the butts, or lower part of the stalk 
of the plant that yields the so-called "jute" fibre. As the jute 
plant has thus far been successfully grown only in India, and as 
labor in that country is in most plentiful supply, at rates of 
wages which even in the much-talked-of " pauper countries" of 
Europe would be considered as insufficient, it would seem, 
reasoning a priori, utterly hopeless to expect that any manu- 
facturer could ever successfully make gunny-cloth in the United 
States, even if he were not under the necessity of transporting 
his raw material twelve thousand miles, or half round the globe, 
and of paying a duty on its arrival of $6 per ton. And yet 
through the invention and application of machinery with which 
the hand-labor of India cannot compete ' this has been done to 
such an extent that the United States now practically manufac- 
tures its own gunny-cloth, and the importation of this article 
from India, which was formerly very great, has become compar- 

' The following story, which comes to the writer as strictly authentic, strik- 
ingly illustrates the nature and economic effect of this new application of ma- 
chinery, and it also constitutes a demonstration of the falsity of the popular 
assertion and belief that it is the comparative rates of wages in different com- 
peting countries which determines the comparative cost of production and the 
necessity of tariff protection. 

Some time since a gentleman, manifestly of oriental lineage, appealed for 
leave to inspect the operations of one of the large gunny-cloth manufactories in 
the vicinity of New York. He was courteously admitted, when the following 
conversation ensued: 

Oriental — I have come all the way from Calcutta to find out why you Ameri- 
cans no longer import my bagging as you used to, but instead of it import the 
jute butts and make the bagging here; I don't understand it. 

Manufacturer — Because we can manufacture cheaper here than you in Cal- 
cutta. 

Oriental — How can that be ? What does that weaver earn a day? 

Manufacturer — About a dollar and a half. It is heavy work. 

Oriental — Well, weavers in Calcutta work for less than a tenth part as much. 

Manufacturer — Yes ; but what does it cost you to weave your bagging per 
yard ? 

Oriental — About three cents. 

Manufacturer — Well, that weaver's work costs half a cent a yard, and we can 
make a better article than the imported cloth with a less weight of fibre. That 
is the difference between our machinery and yours. Now do you see it? 

Oriental — I see that I have come all the way from Calcutta to find out that I 
am a — fool not to have seen it before. Good-morning. 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 109 

atively unimportant ; the decline in imports of gunny-bagging 
having been from 18,800,000 lbs. in 1872 to 2,490,000 lbs. in 1882 ; 
and of gunny-cloth, not bagging, from 32,000,000 lbs. in 1867 
to 226 lbs. in 1882. On the other hand, the importation of jute 
butts (the raw material) increased from 157,000 bales in 1874 to 
320,174 in 1882. The success which attended the efforts of 
those who originally embarked in this manufacture was such 
that others have been rapidly tempted to engage in it, so that 
there are now about 30 manufactories of gunny-cloth and cot- 
ton bagging in the United States, with a reported capacity of pro- 
ducing 50,000,000 yards a year, or a quantity sufficient to bale a 
crop of cotton 2,000,000 bales larger than has as yet been pro- 
duced. Under such circumstances the manufacturers are es- 
pecially troubled with '' over-production." The stock on hand 
is reported to be enormous : some mills have failed ; others 
have shut down temporarily or permanently ; while the sense of 
a general meeting of manufacturers recently convened in New 
York was to voluntarily close all their mills until the present 
stock on the domestic market is greatly reduced or exhausted. 

Now these and many other similar illustrations which might 
be further adduced, did space suffice, demonstrate beyond all 
question that the present most urgent and most important ques- 
tion of the hour — a question that admits and will demand consid- 
eration alike from a political, economic, moral, and social stand- 
point — is. How shall an extension of markets for the products of 
our industries be attained? For in default of such a result our 
manufacturing operations cannot be continued with full activity 
without glutting the home market with their products ; which in 
turn must force a suspension of business, entail serious losses 
on employers, and restriction of opportunity for employment and 
reduction of wages to employes. And it is just this result and 
state of things which now characterizes the manufacturing indus- 
tries of the country, and which, under our existing national fiscal 
policy, is certain to continue. Every manufacturer knows in- 
stinctively that if he could produce and sell with greater cheap- 
ness he could sell more largely, and so acquire larger markets 
for his products both at home and abroad. There is no limit to 
the consumption of desirable commodities, if the price of such 
commodities is brought within the ability to purchase of those 



1 1 PR A C TIC A L E CONOMICS. 

who desire to consume. There can be, furthermore, no such 
thing as their overproduction, so long as any backs are bare, 
stomachs empty, and bodies cold ; but there is such a thing as 
imperfect and faulty distribution of desirable products of labor, 
growing out of artificial or avoidable impediments such as taxes, 
selfishness, ignorance, and imperfect methods and instrumental- 
ities of production. 

But how shall the American manufacturer produce cheaper 
(or at least as cheap as his foreign competitor) in respect to many 
articles for which he has the greatest natural or acquired advan- 
tages, and so solve to a great extent the difficulties which now 
environ him ? There are but two ways (it being taken for 
granted that he is not deficient in the invention and use of ma- 
chinery).' He must have cheaper raw materials, the crude forms 
of the metals, coals, fibres, dye-stuffs, chemicals, unmanufactured 
wood, etc., or he must have cheaper wages, or labor.^ But the 
former, a tariff like that recently enacted (which levies taxes for 
purposes other than revenue) ordains that the American vianii- 
factiirer shall not liave ; (as is strikingly illustrated, for example, 
in connection with the exhibit above given of the present con- 
dition of the domestic gunny-cloth manufacture, by the recent 
refusal of Congress to take off the duty on jute butts); so that 
there remains to him the only other alternative to a curtail- 
ment or suspension of business, namely, that of reduction of 
wages. And this is what the American manufacturing employer 
is now everywhere trying to effect, and what the employ^ every- 
where is instinctively resisting. But what chance has the latter 
to succeed in this contest, with some six to seven hundred thou- 
sand new laborers coming into the country every year from other 
countries, while the whole number of \dihorQrs primarily engaged 

' In view of reports of American consuls that large quantities of old woollen- 
machinery, which English manufacturers have discarded are continuously bought 
for the price of old metal and exported to the United States for manufacturing 
use, perhaps the assumption is not fully warranted. 

'^ It would seem as if the talk of the necessity of having cheaper transporta- 
tion in general was coming to an end when leading American railroads report that 
they can carry freight at half a cent a ton a mile and make a profit on the tran- 
saction; and when the cost of the ocean transport of fresh meat from the United 
States to England has recently been as low as one cent per pound, or, including 
insurance commissions, transport, and sale, not in excess of two cents per pound. 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. Ill 

in all the manufacturing industries of the country is returned by 
the last census at only 2,738,895 ? American \vorkingmen ought, 
therefore, to clearly understand (and as there is no logic so con- 
vincing as scant wages and restricted opportunities for employ- 
ment, it is only a question of time when they will understand) 
that however it may have been in the past, when manufactures 
were comparatively few, now that they are so numerous, if they 
are to be kept in full operation they must produce more than 
the country can possibly consume. A high tariff, under present 
conditions, therefore, necessarily means low wages. Undoubtedly 
some, whose prejudices and interests will not allow them to see 
what they do not want to, may ridicule such a conclusion. But 
thei-e is no escape from it ; because a high tariff— under which 
exemption from taxation is the exception— increases the cost of 
all raw material, tools, and machinery; and to manufacture 
cheaply, as before pointed out, the capitalist employer using 
high-priced raw materials, tools, and machinery must reduce 
wages, or stop through limitation of his market. And when the 
masses of the American people do once understand this inevit- 
able drift and result of our national fiscal policy, the tariff, in- 
stead of becoming a less important issue in American poHtics, 
will become the question above all others predominant ; and 
protection of the kind taught by the Pennsylvania school will 
go down as rapidly as slavery before the uprising of the people, 
and perhaps with a convulsion financial and commercial. 

In no part of the country are opinions akin to those above 
expressed, or an antagonism to the old-time notions about pro- 
tection, more rapidly gaining ground, than in New England, es- 
pecially in Massachusetts, as is illustrated by the evidence 
respecting the condition of the shoe-manufacturing interests as 
above given. And when one considers the special interests and 
position of New England, the wonder is not that such a change 
in public sentiment is now manifesting itself, but rather that it 
has not come before. New England has no " raw materials" for 
her manufacturing industries, using the term in the popular 
sense. She has no home-supplies of coal, of the metals, of fibres, 
of chemicals, and of dye-stuffs, and comparatively little lumber. 
Nearly all of these essentials to successful manufacturing can be 
obtained in many locaHties outside of her borders cheaper and 



1 1 2 PRA C TIC A L E CONOMICS. 

more readily than within her territory. Heretofore the skill and 
intelligence of her people and her comparatively abundant capi- 
tal have been to her a protection against these disadvantages. 
But this protection is now rapidly disappearing. There are just 
as good Yankees to-day outside of New England as within New 
England. They have gone from her cold climate and sterile 
soils to places where the raw material which they desire for 
manufacturing production is cheaper ; and they have carried 
with them their machinery and the knowledge and ability nec- 
essary to make the best use of it. These emigrants from the 
place of their nativity do not propose to go back to New Eng- 
land to buy anything, which under the protection of the cost of 
transportation and cheaper raw materials, they can afford to pro- 
duce themselves ; and they mean to supply the localities in which 
they have established themselves — the South, the valley of the 
Mississippi, the Northwest, and the Pacific States — with the re- 
sults of their local industries in these sections of the country. 
Within the past month a wail has gone up from New England 
cotton-manufacturers that unless the railroads reduce their South 
and West bound freights they cannot compete in the manufacture 
of the coarser cottons with other domestic competitors located 
out of New England ; and every steamship which now sails out 
of the ports of Charleston, Wilmington, and Savannah is in no 
small part loaded with cotton fabrics in place, as formerly, with 
cotton fibres exclusively.' Some three years ago ex-Gov. 

' The following extract from a recent number of one of the most ultra high- 
tariff journals of New England (the Boston Traveller) will be read with interest 
in connection with this matter: 

* The cotton manufacturing in the South is as yet in its infancy, it is 
nevertheless becoming rapidly apparent that New England must not be too sure 
of retaining a monopoly of this branch of manufacture. A sharp competition al- 
ready exists, not only for the trade in sheetings in the cotton States, but Southern 
cottons are now entering the markets of the Southwestern States, and the New 
Englander finds himself confronted in all the leading markets of the Mississippi 
valley with sheetings and shirtings in no vi^ay inferior in quality to those manu- 
factured by himself, and which are offered at a less price than he, to make his 
customary profit, can possibly afford. Instead of a possible competition twenty- 
five years hence, the danger which threatens the New England manufacturer is 

already imminent The Southern mills are not yet producing the finer 

qualities of goods, but, remembering the history of the last ten years, it is not safe 
to assume that with the same machinery that is used in the North they will not 
successfully do this within the next ten years." 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. II3 

Cheney of New Hampshire, in an address before a local as- 
sociation of cotton manufacturers, called attention to the fact 
that when cotton-mills now burn down in New England they 
are not rebuilt ; and at the present time, it is reported, that, 
with one exception of an annex, there is not a single new foun- 
dation of a cotton-mill now going in. 

There is much in the present and prospective industrial and 
commercial condition of this country which is analogous to that 
of England just prior to her decision to abandon the protective 
policy, which she had maintained for centuries; and those who 
have the time and opportunity will find much to interest and in- 
struct in examining the history of this period, and especially the 
speeches of Sir Robert Peel in the House of Commons and in the 
spring of 1842. Sir Robert Peel, as is well known, was not one 
of the original English free-traders, sympathizing at the out- 
set with Cobden, Bright, and other leaders of the new movement, 
but, on the contrary, was personally in antagonism with them, 
and a comparatively late convert to liberal commercial opinions. 
That the strong current of public sentiment in opposition to the 
further continuance of the corn-laws, which Avas then everywhere 
manifesting itself in England and even threatening revolution^ 
had something, perhaps very much, to do with influencing his 
opinions in respect to the desirability of a change in the long- 
established fiscal policy of his country, may be conceded ; but, 
at the same time. Sir Robert Peel's whole life and character, and 
especially his subsequent history, showed that while he ever 
knew how and when as a statesman to conform to expediency, 
he was too much of a man to allow expediency to ever become 
a permanent and predominant basis for his public action ; and 
one therefore must seek for some other motive in explanation 
of his conduct in radically and rapidly abandoning his long- 
cherished protection opinions in the spring of 1842, and in the 
undeviating support which he afterwards gave to the principles 
of free trade. And this motive is thus set forth by his biog- 
rapher, Thomas Doubleday, who, after remarking (see '* Political 
Life of Sir Robert Peel," vol. ii. p. 380) "that the arguments of 
the apostles of free trade had made a deep impression upon the 
mind of the minister," goes on to say that, " with a population 
then increasing at the morbid rate of about a million in the short 



1 1 4 PJiA C TIC A L E CO NO MIC S. 

Space of three years, he {Sir Robert Peel) ]iad manifestly become 
penetrated zvith the conviction that to find employment for the 
numbers that might in no long time demand it, and hi a way not 
to be resisted, some large extension of foreign trade must in some 
way be created." And Bulwer, in his monograph of Peel's career 
as a statesman, speaks of his being impressed with the fact, 
which ought to be also pregnant, at this time especially, with 
meaning to the working men and women of the United States, 
that the wages of the ivorkman could not be made higher or more 
remunerative by making his food dearer. In bringing forward 
his scheme for recasting the British tariff in May, 1842, Sir 
Robert Peel accordingly, while greatly simplifying the customs 
acts by abandoning the duties on many minor articles, sought 
more particularly to accomplish, and did accomplish, first, the 
cheapening of the living of the British people by abandoning or 
reducing the duties on imports of food ; and secondly, the 
cheapening of the cost of production to British manufacturers 
by entirely removing the duties on drugs and dye-stuffs and 
greatly diminishing the duties on the import of many other 
articles essential to manufacturing. And his great speech of 
the loth of May, 1842, explaining and defending his new policy, 
abounds in practical illustrations which are almost identical 
with those which are now to be found in the present commercial 
and industrial experience of the United States. Thus, for ex- 
ample, in speaking on the subject of the then British duties on 
metals, he says : 

"There is no part of the tariff in which we can make more important 
changes, than in that which relates to the reduction of duty on ores. 
Whether I speak of iron, lead, or copper, in my opinion great advantage 
to the commerce and manufactures of this country will result from per- 
mitting the entry of these important articles at a much more diminished 
rate of duty than at present. Let me take the case of copper. At present 
you cannot import and smelt foreign copper for internal use. You have 
greater advantages than any other country possesses with respect to coal, 
and you can apply that coal with great advantage to the smelting of for- 
eign copper; but when it is smelted you cannot make use of it for the pur- 
pose of home manufacture, and you send it to France and Belgium to be 
manufactured. What is the consequence? Why, that those foreign coun- 
tries can come into the markets of Europe, undersell you in copper, in 
bolts for the fastening and copper for the sheathing of ships, and in a 
variety of other articles made of copper and brass." 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. II5 

And he then further points out " that as ships can be fast- 
ened and coppered on the Continent at a much cheaper rate 
than in this country" (England), a very serious disadvantage in 
the way of the growth of British shipbuilding had been created. 

To those familiar with the workings of our existing tariff 
it seems hardly necessary to point out that the United States 
in 1883 has almost exactly the same experience in respect to 
copper that Sir Robert Peel declared was proving so injurious 
to Great Britain in 1842 ; that is, we do not permit foreign ores 
of copper to be taken from Chili and other nations in exchange 
for our agricultural implements and textiles; we do not allow 
such ores to be smelted with our coal and our labor, and in 
fact have actually destroyed great smelting establishments that 
flourished before the tariff of 1861 ; we have destroyed the ship- 
ping that formerly made such exchanges, and we give a bounty 
to foreign competitive copper-manufacturers by so shielding 
the proprietors of our rich mines from healthy competition, 
that the latter regularly sell the excess of their product over 
domestic requirement for a lesser price in foreign countries than 
they will sell in their own country. 

Again, on the subject of oils. Sir Robert Peel, after pointing 
out that British manufacturing industry was then exposed to 
great disadvantages on account of the high prices of oils, more 
particularly spermaceti-oil, and that in consequence he pro- 
posed to greatly reduce the duties on their importation, went 
on to say : 

"We shall then introduce the product of the American fisheries in 
competition with our own fisheries, and prevent the price of oil in this 
country from reaching an extravagant amount. I hope, sir, that I am not 
needlessly detaining the House, but I want to establish by proof a position, 
of the truth of which I feel confident, that the general result of this" (re- 
duced) " tariff will be to give a new life and activity to commerce and to 
make a reduction of those charges which are now incurred by residence in 
this country. A very short time since the price of spermaceti-oil in this 
country was from £60 to ,£70 per ton, but lately it had risen to £^^ and 
even ^iii per ton ; and the manufacturer who required that oil had no 
alternative but to consume olive or other vegetable oils which did not 
answer his purpose so well, or pay an extravagant price as compared with 
the price of that oil in the United States. There are no oils that can be 
substituted for it without disadvantage, and yet we have to carry on a 
formidable rivalry with the United States in some branches of manufac- 



1 1 6 PR A C TIC A L E CONOAIICS. 

ture with the disadvantage of having to pay 8s. per gallon for oil which 
in America is sold for 4s. per gallon — a difference of 100 per cent." 

So much, then, for one of the most recent and most impor- 
tant phases of the tariff question. An examination of it, such as 
in part has been here given, ought to abundantly satisfy us that 
the country has become too big to endure anything in the w^ay 
of commercial and industrial restrictions except such as are ab- 
solutely necessary for the maintenance of the state. In fact the 
people of this country, more especially those of New England, 
would seem, from the evidence above submitted by the repre- 
sentatives of the Lynn shoe and other manufacturing interests 
to have come to a " parting of the ways" on the question of 
their future tariff policy. They may decide in favor of a con- 
tinuance of such a policy as aims to protect their leading 
manufacturing interests by duly enhancing the cost of all the 
elements that enter into them, and learn through costly experi- 
ence that such a decision means the fiercest of domestic com- 
petition, the limitation of markets, and the restriction of 
industrial growth. Or they may decide to favor a tariff which, 
while primarily levied " for revenue only," will at the same time 
discriminate in favor of and fully protect home industries by 
removing all unnecessary obstructions to their extension, and 
so gain for the country such control over the markets of the 
world as the skill and intelligence of its people fully entitle them 
to enter upon and possess. 

In a subsequent article it is proposed to ask attention to 
other equally recent and no less important phases of the tariff 
question. 



THE MOST RECENT PHASES OF THE TARIFF 
QUESTION.' 

II. 

IN the preceding number of this Review (May, 1883) the 
assertion was made that our existing national fiscal or 
economic policy was so shrivelling up the manufacturing in- 
dustries and trade of the country, and entailing so much of 
labor discontent and disturbance, that nothing could long divert 
the attention of the people from an earnest consideration of the 
tariff question, or prevent it from coming to the front, as a 
political issue of the first importance. In the two months 
which have now elapsed since the article referred to was written, 
much evidence additional to that then submitted in support 
of this position has accumulated ; which in general may be 
summed up by saying, that continued failures, suspension of the 
work of production, and attempted reduction of wages on the 
part of manufacturers ; strikes and resistance (rarely successful) 
on the part of employees ; with a curtailment of the business 
of the country, and a reduction of profits on the transaction of 
the same to a degree most unsatisfactory, — have been and are 
now the most noticeable features of the situation ; to which the 
further remark may be added, that one must be indeed sanguine 
who expects anything different in the immediate future, except 
as the result of one of those happy accidents, or " special provi- 
dences," which on occasions of difficulty are said to always hap- 
pen for the relief of infants, drunken men, and the United 
States.' The condition of one other great domestic industry, 

"^Princeton Review, yuly, 18S3. 

' When the maximum of industrial depression and commercial disturbance, 
arising from production artificially stimulated and in excess of current demand, 
is once reached, the recovery, in a country situated as is the United States, of 
necessity commences. The marvellous increase in our population alone causes 

117 



Il8 PRACTICAL ECONOMICS. 

in addition to those previously noticed in detail, namely, that of 
the woollen manufacture, is, however, worthy of special atten- 
tion. With the exception of the manufacture of iron and steel, 
this industry, more than any other, has now been protected in 
the United States for many years, by complex tariff provisions 
carefully devised for the purpose by representatives of the in- 
volved interests, and subsequently enacted without the slightest 
regard to either the interests of consumers, or of the state in 
respect to revenue. The result, so far as \.\\q past is concerned 
is that no one of the domestic industries has been more subject 
to periods of extreme fluctuation, or has paid so small an ave- 
rage profit on the total capital invested, as has the woollen and 
worsted manufacture of this country since the enactment of the 
wool tariff of 1867 ; while, in regard to the present, there is almost 
no divergence of opinion " among the trade" that the woollen 
machinery and the production of woollens in the United States 
is very far in excess of any existing market requirements. In- 
deed, the estimate of some who assume to be qualified to speak 
is " that not ov^x fifty per cent of the domestic manufacture of 
spring clothing and woollens for the seasons of 1882 and 1883 
has really passed into consumption." It has, therefore, followed 
(to quote from a leading commercial review under date of 
June 6, 1883). 

" that a heavy capital is locked up in old stock carried by clothiers and 
cloth jobbers, and that the spring clothing lately sold by the former has 
been forced on the market at less than the actual cost of manufacture." 

consumption to rapidly gain upon production under such circumstances; until 
finally the community all at once realizes that supply has become unequal to the 
demand. Then those of the producers who have been able to keep their heads 
above water during the period of depression enjoy another season of remarkable 
prosperity; when others again rush into business in excess of any need, and the 
old experience is again repeated. Such has been the history of the industry of 
the country for the last twenty years under the influence of a high protective tariff, 
and such is most noticeably its present experience. To use a familiar expres- 
sion, it is always " either high water or low water" with the business of the 
United States: no middle course and no stability. What the people gain as con- 
sumers at one time from low prices they more than compensate at another by 
the recurrence of extreme rates; and as producers, by periodic suspension of in 
dustry, reduction of wages, and depression of business. Meanwhile the loss to 
the country from the destruction of capital and the waste and misapplication of 
labor is something which no man can estimate. 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. II9 

Under such circumstances the woollen manufacturers of the 
United States, generally recognizing that there is to them no 
other prudent alternative to producing without orders, or at the 
best at infinitesimal profits, but to suspend operations, have be- 
gun to adopt this latter policy ; and a very large number of wool- 
len-mills are already closed (nearly 800 sets of machinery re- 
ported idle, July i), or working upon reduced time, and the pro- 
gress of events is making it every day less and less a matter of 
choice to the manufacturer as to what course he will take. 

So much, then, for one phase of the tariff question indicative 
of influences that are irresistibly working to compel changes in 
popular sentiment and a new *' crystallization of political forces " 
on this subject. 

Consideration is next asked to another phase of this question, 
which developed itself more conspicuously during the last ses- 
sion of Congress than ever before ; namely, the antagonism of 
different interests under the protective policy — an antagonism 
that bids fair to evolve more of bitterness and hatred than has 
ever been manifested by protectionists as a whole against the 
free-traders ; which from the necessity of the case must con- 
tinue to intensify ; and which sooner or later will divide the 
protective party into hostile factions, and inevitably wreck the 
whole system which it advocates.' 

It is evident that the representatives of many branches of 
domestic manufactures, more especially those engaged in the 
higher forms of production, are beginning to feel that their pros- 
perity and even industrial existence is dependent upon a cheaper 



^ That this statement is fully warranted, attention is asked to the following 
extract from a letter reviewing the tariff legislation of the Forty-seventh Congress 
written by Senator John Sherman to the Commercial-Gazette of Cincinnati. He 
says : 

"When the bill was reported to the Senate it was met by two kinds of oppo- 
sition — one the blind party opposition of Democratic free-traders; the other 
(much more dangerous) the conflict of selfish and local interests, mainly on the 
part of manufacturers who regarded all articles which they purchased, as raw 
material, on which they wished the lowest possible rate of duty ; and their work 
as the finished article, on which they wished the highest rate of duty. In other 
words, what they wanted to buy they called raw material, and what they wanted 
to sell they wanted protected. It was a combination of the two kinds of opposi- 
tion that made the trouble." 



I20 PRACTICAL ECONOMICS. 

and better supply of their raw or crude materials, through a 
reduction or entire abrogation of the tariff taxes on the importa- 
tion of such articles. That the attainment of such a result is 
most important to New England has already been pointed out. 

But upon what principle of equity or consistency is protection 
through the agency of the tariff to be given to those who manu- 
facture machinery, tools, hardware, and cutlery out of crude 
iron and steel, or who spin and weave wool, and the fibres of 
flax into cloth, and to be denied to the ore-miner, the iron smelter 
and forger, and the wool and flax grower? Is not the laborer as 
much entitled to have the state protect him against the com- 
petition of the so-called pauper labor of Europe in the one case 
as in the other? It seems almost needless to say that no answer 
in favor of such discrimination can be given that does not involve 
inconsistency and inequity. Nevertheless such discrimination 
in the levying of duties under the tariff has got to be made, 
if extended markets for our manufactured products are to be 
obtained through cheaper production. And the inevitable 
alternative in default of such discrimination is, that our indus- 
trial growth, and the sphere of opportunity for the employment 
of manufacturing labor, will be restricted to the comparatively 
limited and (in view of our capacities) wholly inadequate 
demands of an almost exclusively home market ; with a con- 
tinued threat of business stagnation through excessive produc- 
tion to employers, and of reduction of wages to the employees. 

Among the many illustrations which might be adduced in 
proof of the inevitable antagonism of protected interests that is, 
and is to be; and how unquestionably protection destroys pro- 
tection under a system like that now recognized in the United 
States, which attempts to protect every manufacturing industry, 
— the following, derived from the records of the Federal House 
of Representatives at the last session of Congress, is among the 
most curious and instructive. 

The glass-bottle manufacturing interest, comparatively one 
of the smallest industries in the United States, and enjoying a 
protective duty on competitive imports of 35 per cent, asked to 
have this protection increased to such an extent that it would 
amount to near 100 per centum ad valorem. The representa- 
tives of this industry were, however, too wise to propose that 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 121 

any such increase should be incorporated into the statute in 
language sufficiently clear to be readily understood — the day 
for the enactment of loo-per-cent duties plain and simple, on 
the importation of articles of common use, having obviously 
passed ; and they therefore, with a seeming absence of all guile, 
merely asked that specific rates be substituted for ad valorem, 
and fixed at l\ cents per pound ; the relative ad valorem of 
which none but experts could understand. But in opposition 
to this change appeared, some little time afterwards, the repre- 
sentatives of the great brewing interest of the United States — 
employing a capital of $91,208,000, while the whole common 
glass manufacture, a small proportion of which only is engaged 
in the manufacture of bottles, represents but $19,844,000 of in- 
vested capital ; and in the course of the debate which ensued 
on the proposition to amend the tariff on bottles the following 
statements were submitted : 

1st. That the proposed increase in duties would increase the 
price of beer-bottles to the extent of $2.13 per gross, and the 
cost of bottling to the extent of $14,807.86 for every 6000 
barrels so treated ; and that as there are brewers — individuals or 
firms — in the United States who now bottle over 100,000 barrels 
of beer annually, such manufacturers would, in the interest of 
the bottle-makers, be subject in consequence to a tax, in addi- 
tion to what they now pay, of near $250,000 per annum. 2d. 
That the business of manufacturing beer — " ales" and " lagers" — 
in the United States has within recent years grown to enormous 
proportions ; that the products of such manufacture are now 
beginning to be exported with success to Mexico, South America, 
Australia, and even to Europe ; and that they can be exported 
safely only in bottles. 3d. That the increase of the tariff taxa- 
tion on bottles to the extent asked by the bottle manufacturers, 
would tend to entirely break up and destroy this export busi- 
ness. And as evidence on this point a letter was submitted 
from the president of a single brewing association in Missouri, 
claiming to employ more labor and capital than any five bottle- 
making establishments in the United States, of which the follow- 
ing is an extract : 

"While the present high duty of 35 percent ad valorem is a great im- 
pediment to the exportation of American bottled beer, we have neverthe- 



122 PRACTICAL ECONOMICS. 

less managed to compete with some success with Europe for the trade of 
Mexico, Central America, Sandwich Islands, aiid parts of Brazil and Au- 
stralia, and the demand for the better American brands is constantly in- 
creasing. If there was no duty at all on bottles, as should be the case, 
nearly the entire trade of the countries named, which is considerable, 
could be diverted to the United States, where it properly belongs. We 
have now to contend against this drawback of higher bottles than the Eu- 
ropean bottler pays. But a prohibitory tariff of i^ cents per pound would 
result in driving out all American competition from such foreign lands 
and damage the trade immensely." 

Here, then, was clearly a case in which not to discriminate in 
the imposition of duties in respect to different manufactures, and 
not to deny, in the specific instance cited, the demands for any 
additional protection, was to militate against the extension and 
prosperity of one of the largest branches of our domestic indus- 
try ; against a most promising but incipient extension of our 
foreign commerce, and in favor of a restricted market for one 
of the leading products (barley) of our agriculture. 

In the debate which took place on this proposition to in- 
crease the duties on bottles the members of the House of Rep- 
resentatives did not fail to see the importance of the point 
involved, and accordingly, in two successive votes, viva voce and 
by tellers, refused to increase the rates; but in the juggle of the 
Committee of Conference the duty on bottles notwithstanding, 
came out at i cent per pound, in place of the former rate of 35 
per cent ad valorem, or was increased nearly 100 per cent; 
and in the closing hours of the session, and with the cognizance 
of only a very few members, the change was enacted into law. 

Representatives of the Western beef and pork packing inter- 
ests also appeared before Congress at its last session, and pro- 
tested against further discriminations in the levying of duties 
on imported salt, whereby benefits extended to the packers and 
curers of fish in the Eastern sections of the country are not 
equally given to the packers and curers of meats at the West. 
This petition or remonstrance was almost unnoticed, but it is 
nevertheless worth while to note how they presented their 
case. After calling attention to the fact that during the year 
1881, 133,024,447 pounds of foreign salt paid no revenue to the 
government, it having been withdrawn from bond in accordance 
with a provision of the act of 1866 that all salt used in the cur- 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 123 

ing of fish shall be exempt from duty, — the assumption being 
that much of the fish thus cured is sent to a foreign market, 
where it competes with similar productions of those countries, — 
the petitioners go on to say : 

" The same argument" {i.e., in favor of those who cure fish) " can be ad- 
vanced in favor of the people of the balance of our country who continue 
to pay duties on salt, for in the West and South large quantities of pork, 
beef, and other products are annually cured with salt and sent to foreign 
countries for a market, and are sold in competition with similar articles of 
other countries. Why, therefore, should the products of one section of 
the country be thus discriminated against, and those of another section be 
encouraged and protected ? Is this equity? is it justice ?" 

The curious state of things brought to light by the petition 
presented to Congress at its last session by the Harrison Wire 
Company of St. Louis ought also not to be passed unnoticed 
in this exposition of newly developing tariff antagonisms. In 
this petition it was represented that the company named was 
engaged in the State of Missouri in the manufacture of wire for 
fencing purposes ; that their business was rapidly increasing in 
volume, creating new and extensive opportunities for the em- 
ployment of labor ; and that their present production of wire 
was nearly one hundred tons per day. It was further repre- 
sented that the wire thus produced is manufactured from soft 
steel, known to the trade as the Bessemer product ; but that, 
owing to the high price charged for this latter in this country, 
the company had hitherto been compelled to purchase their 
supplies in Europe; that recently it had been discovered that 
ores out of which such steel could be easily and profitably pro- 
duced by the so-called '• basic process" existed in large quanti- 
ties in Missouri, Alabama, and Tennessee ; and that to take 
advantage of such discovery the aid of foreign capital had 
been sought and obtained. That the assignment of the right 
to use the basic process had been also obtained from the 
apparent owner thereof, and that suitable works, involving an 
ultimate expenditure of five millions of dollars, had been 
commenced, and would have been now completed, but for 
legal proceedings instigated by the American Bessemer Steel 
Company, avowedly for the purpose of preventing the Har- 
rison Wire Company from proceeding with their new enter- 



124 PRACTICAL ECONOMICS. 

prise, and for the purpose of enabling the former company " to 
keep up the price of its products" and " monopoHze the iron and 
steel business interests of the country." It was also set forth 
in the petition, that the interference of the Bessemer Company 
was based on a claim to have patents on this basic process, but 
which process the Bessemer Company had not only never used 
and did not desire to use, but also did not propose to allow any 
one else to use outside of their own organization ; and further, 
that a suit commenced by the " Bessemer" against the " Harri- 
son" Company for an infringement of patents was a pretence, in- 
asmuch as, if the former did really own the patents (which is 
disputed), there could be no actual infringement so long as the 
new steel-works were incomplete and had not commenced 
operations. " And thus it is," continues the petition, " that 
Congress prevents foreign importation by a protective tariff, 
and the patent-laws enable the Bessemer Company to prevent 
all new competitive enterprises in this country. " The Harrison 
Company therefore prayed Congress for relief ; to wit, by so 
amending the tariff " as to prohibit the joint purchase by corpo- 
rations of any patent for reducing iron-ore, as an act contrary 
to public policy ;" and also, " that if any such patent be now 
owned under any purchase or pretended purchase," such owner 
shall " be compelled to license all who desire to convert such 
ores at a reasonable price." And " if they neglect or refuse" so 
to do, they shall forfeit all rights under any patent, either foreign 
or domestic." When this petition was first introduced, it was 
no secret at Washington that its object was to force the Besse- 
mer Company (mainly a Pennsylvania interest) to abandon its 
" dog-in-the-manger" policy in respect to the Harrison Company 
and other domestic manufacturers, through a threat of serious 
tariff defection and revolt on the part of Western producers ; and 
that the political influence of the family of the president of the 
Harrison Company was also to be invoked for the same end. But 
be this as it may. as the petition after presentation was not made 
the basis of any attempted legislative action, it is probable that 
the object sought for was accomplished in another but not less 
effective manner. 

Again, in further illustration of the bitterness of feeling that 
the policy of protection is certain to provoke among the ranks 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 12$ 

of the protectionists, it is interesting to note that one of the 
most bitter, ahnost ferocious, exhibits of personal feehng that 
has ever been displayed during the whole twenty years of the 
present tariff controversy was embodied in a pamphlet distribu- 
ted to Congress at its last session ; in which Mr. Joseph Wharton, 
manufacturer of nickel in Pennsylvania, and a protectionist, at- 
tacked certain Connecticut plated-ware manufacturers, and the 
members of the Senate of the United States from Connecticut, 
all also and alike protectionists, because the latter desired and 
advocated a reduction of duties on nickel, which is a crude and raw 
material in the manufacture of plated ware, but which the former 
desired to produce, and through the maintenance of high duties 
to also monopolize and control the American market. And as a 
specimen of this personal feeling, and also of the unity that pre- 
vails among these brothers in selfishness, — for self-interest and no 
other motive is the only ground of dilTerence between the man 
who wants to make and monopolize, and the men who want to 
use nickel, as to how the government shall interfere in the mat- 
ter, — the following extracts from Mr. Wharton's pamphlet are 
here quoted : 

"Senator Piatt's constituents have nickel-ore quite similar to mine, and 
in apparent abundance, within a few miles of their German-silver works at 
Torrington, at Litchfield, and probably at other places in the Naugatuck 
Valley. That Torrington ore was never successfully worked in Connecti- 
cut, whether because the brass and German-silver business paid the canny 
wooden-nutmeg men better, or whether their consciences forbade them to 
bloat themselves with the ungodly profits of the nickel manufacturer, his- 
tory does not inform us. Let us believe it was piety." 

And again: 

" It is pitiful to think that the industries of our country should be at 
the mercy of legislators, some of whom are actually hostile and many of 
whom are so ignorant; to think that any lie of the busy agents of our 
national industrial enemies — mostly small barking creatures — should be 
believed, even when not understood, and that the statements of a fellow- 
citizen of known respectability should be disbelieved and cheapened, 
simply because he is a fellow-citizen. It would be ludicrous if it were not 
lamentable to think that a tree bearing good fruit should be cut down by leg- 
islators" (i.e., the Senators from Connecticut) •' who know little more about 

the subject than a cow knows about Sunday I have supported and 

aided the government more than it has supported and aided me. I am 



126 PRACTICAL ECONOMICS. 

one of the men who create and maintain the prosperity of the nation, and 
who enable it to survive even the affliction of wrong-headed and cranky 
legislators. We are the toiling oxen who make the nation's harvests, not- 
withstanding the gadflies." 

' Readers curious to know what was said on the other side by the "spoon- 
makers" of Connecticut and certain " actually hostile" and " so ignorant" legis- 
lators who spoke for them, will obtain this information from the following official 
report of a debate in the Senate of the United States, January 29, 1883; the sub- 
ject under consideration being the duties on nickel: 

" Mr. Platt. Mr. President, nickel under the present law in the ore is 30 
cents per pound, and nickel alloys are 20 cents per pound. Either duty is practi- 
cally prohibitory. A single establishment in Connecticut uses of nickel annually 
three times the amount that has been imported into this country. 
" Mr. Ingalls. Where is it mined in this country? 

" Mr. Platt. It is mined in one single mine near Lancaster, Pennsylvania, I 
think. When this duty was imposed of 30 cents on the ore and 20 cents on the 
alloy, nickel was worth from $2 to $2.50 or $2.75 a pound. A duty of 15 cents a 
pound to-day would be a higher ad-valorem duty than that imposed when nickel 
was from $2 to $2.75 a pound and the duty was really 20 cents per pound on the 
alloy. 

"All this nickel, or three quarters of it, is consumed in Connecticut for the 
manufacture of German silver. 

" It is said that this nickel mine is closed. It is simply closed not because it 
does not pay, but because at the present time there happens to be an overpro- 
duction, and the owner of it will not reduce the price. The price at the present 
time is about $1 to $1.05 a pound. It can be produced — I do not make this state- 
ment from my own knowledge, but I make it from representations made to me 
by persons who I think are entirely familiar with the subject — it can be produced 
in this country as cheap as it can abroad, owing to the fact that this ore here is 
more easily refined. 

" Mr. Bayard. What is the foreign price? 

" Mr. Platt. The foreign price is somewhere in the neighborhood of 70 cents 
at the present time. I believe that 15 cents per pound is more than a fair pro- 
tective duty to the gentleman who produces this nickel. Certainly my constitu- 
ents are very greatly interested in not having so high a rate of duty placed upon 
it as to unnecessarily enhance the cost of the article which they manufacture, and 
which is then taken in its third stage and worked into articles which go all over 
the country. 

" Mr. Sewell. I would ask the Senator from Connecticut if the manufacture 
of this article in this country has not reduced the price of the foreign article very 
largely ? 

"Mr. Platt. The producer of nickel in this country produced nickel for a 
number of years at 50 cents, or from 50 to 70 cents a pound. He sold it from $2 
to $2.50 and as high as $3 a pound, because there was a scarcity of it in the whole 
world. Recently a mine has been opened in New Caledonia which produces large 
quantities of nickel, and has thereby forced him to reduce the price, but I still 
believe he makes 100 per cent on every pound of nickel he produces. 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 1 27 

It needs no gift of prophecy, therefore, to foretell what will 
happen if, with a view of promoting the interests of the greater 
industries of the country — those which employ the largest 
amounts of capital and the largest number of laborers — the old 
policy of attempting to protect everything is in any degree to be 
abandoned. It cannot fail to provoke the most violent antago- 
nisms. And, to borrow an illustration from old ^sop, if any of 
the smaller protection monkeys should have their tails cut off — 
a work of necessity, if genuine protection of American industry 
by removal of burdens is ever to be entered upon — we may be 
sure that those experiencing such misfortune will be the most 
clamorous for the subjection of all the other monkeys to a like 
operation. For example, when the Senate at its last session, in 
recognition of a general and favorable public sentiment, largely 
reduced the duties on lumber, the indignation at such action, 
expressed both by action and word by at least one Senator 
specially representing the lumber interests, was almost ludicrous ; 
and notice was promptly served that unless such vote was re- 
scinded active opposition would be made to the whole protec- 
tive system, and more particularly to the maintenance of those 
duties in which New England was known to be specially in- 
terested. And before such threat, which would otherwise have 
undoubtedly been executed, the duties taken off pine lumber in 
the first instance were substantially restored, nearly every Sena- 
tor from New England concurring. When the writer subse- 
quently asked a Senator whose views, privately expressed, were 
in favor of the abolition of all duties upon lumber, why he voted 
for the retention of the duties, he received this reply : " It is 



' ' Mr. Sewell. Does the Senator from Connecticut say that the price of nickel 
is 75 cents a pound ? 

" Mr. Platt. That is stated by those persons who consume it. 

"Mr. Sewell. Mere hearsay. 

" Mr. Platt. It is not mere hearsay. There are eleven establishments in 
Connecticut engaged in the manufacture of German silver, all of whom depend 
upon this producer for the nickel. He has practically the control of the market 
in this country. They are very intelligent men; they are men who have exam- 
ined this matter with the greatest care, and it is their statement that I make when 
I say that I believe Mr. Wharton can produce nickel at 50 cents a pound. I have 
never seen it denied by him. The statement has been made over and over again, 
and I do not think they intend to misrepresent him." 



1 2 8 PRA C TIC A L E CONOMICS. 

of no use for you to ask me this question. Without such a 
change of votes the interests of New England would have been 
slaughtered." But how unsatisfactory must be the industry of 
the country, or any section of it, whose prosperity depends upon 
the accidents of votes under such influences! 

There are certain phases also of the tariff, or more precisely 
of the protective policy, involved in the so-called " silver ques- 
tion," which have not heretofore been generally recognized, but 
which it is well not to overlook in prospecting the future course 
of events — economic and political — in the United States. Not- 
withstanding all pretences and assertions to the contrary, the 
compulsory obligation imposed some years since by legislation 
on the Federal Treasury, and still continued, to purchase and coin 
silver, in disregard of any necessities or requirements of the 
business of the country, was never in any sense entitled to be 
regarded as a measure in the interest of the currency or of the 
bi-metallic problem, but on the other hand was from the very 
outset a measure of protection, pure and simple, for the benefit 
of a special industry, tho not in the usual form of a tariff 
enactment. Thus, with the reduction in the world's price for 
silver bullion consequent on the world's increased product 
of silver, and the disinclination everywhere manifested in all 
countries of high civilization and prices to use silver coinage, 
as too bulky and inconvenient for effecting exchanges, it be- 
came evident to the owners of silver-mines in the Southwest 
and on the Pacific that the market for their products was likely 
to be less profitable and certain than it would have been, had 
the old-time condition of affairs remained unaltered. And 
with the precedent and experience of legislation avowedly 
for protection under the tariff before them, what more natural 
than that the representatives of silver-mining should not only 
seek, but demand as a right, that government should inter- 
fere, and by means of additional taxation upon all other pursuits 
and industries of the country, make profitable to them a busi- 
ness which natural circumstances were tending to make less 
profitable or possibly wholly unremunerative. As tariff restric- 
tions could not, however, help in this matter; as the price for 
silver throughout the world was irrespective of any question as 
to whether the labor entering into its production was "pauper" 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. 1 29 

or affluent ; and as legislation in favor of an annual bounty of 
some twenty-four millions to be paid directly from the Federal 
Treasury to the silver producers was not likely to find favor with 
the public, the solution of the problem involved might have 
seemed at the outset to be not a little difficult. But happily 
and ingeniously all difficulties were overcome by apparently 
transferring the issue from the domain of protection and boun- 
ties to that of the currency, and this was accomplished by alleo-- 
ing that the people were suffering from an insufficiency of silver 
coinage ; that the " gold-bugs," speculators and monopolists were 
everywhere hostile to the circulation of silver; that the honor of 
the country required that the " dollar of the fathers" demoral- 
ized by a trick should be reinstated in its former position ; and 
finally that the solution of the vexed problem of bi-metalism 
would be greatly aided if the Federal Government would large- 
ly increase its coinage of silver and lend all its influence to force 
the same into circulation. And under such circumstances and 
pretences it was not difficult for the silver-mine interests to obtain 
a large measure of protection, by creating an extraordinary and 
wholly artificial but nevertheless a certain large additional mar- 
ket for their products, through an enactment that the Federal 
Treasury should regularly buy silver bullion, irrespective of 
all circumstances, to the extent of two millions of dollars per 
month, or twenty-four millions per annum, as a minimum. 
That the reasons put forth for the enactment of such a law 
were pretences and shams, as asserted, is made evident from the 
circumstances that now that the people have got all the " dollars 
of the fathers" in circulation that they want ; now that silver 
bullion and dollars are rapidly accumulating in the national 
treasury and remaining unused simply because no one wants 
anymore of such material for currency ($61,000,000 of silver 
bullion, coined dollars and fractional currency being reported on 
hand June ist, 1883); now that it is admitted that the existing 
coinage policy of the United States instead of aiding is greatly 
complicating and delaying the settlement of the bi-metallic cur- 
rency problem ; now, in short, that every object for which the 
coinage act of 1877 was ostensibly passed has been either ac- 
complished or proved to be beyond the province of legislation, 
the very men who were most anxious for the original enactment 



1 30 PRA C TIC A L E CONOMICS. 

of the law are now most opposed to its repeal. And it ought to 
be further understood that the real reason why Congress refused 
at the last session to give heed to an almost general sentiment 
among business men that the further coinage and accumulation 
of silver by the Treasury should be stopped, was the open threat 
or intimation on the part of the Senators and Representatives 
of the silver-producing States, that in case of such action their 
support and votes could no longer be relied on for the mainte- 
nance of continued high duties under the tariff, on the ground 
that the principle and expediency of protection by the govern- 
ment being once admitted, there was no good reason for objection 
to one method of its application rather than another. Whether 
this threat will be made good, and a serious defection be so created 
in the ranks of the high-tariff party, by the repeal of the act for 
the continued purchase and useless accumulation of silver — a 
measure which the common-sense and necessities of the country 
will at no distant time compel — is a matter for the future to de- 
termine. But for the present it is sufficient to note that the sil- 
ver problem has become one of the new phases of the tariff ques- 
tion ; and to also call the attention of those who, apprehensive 
of financial disorder from the continuance of our present coinage 
policy, are solicitous for a change, that the issue before them 
involves a discussion of the principles of protection, and not in 
any rightful sense the principles of currency. 

One further point in connection with this subject. In dis- 
cussing the question of the protective policy from the stand- 
point of expediency, which is claimed to be the only proper one 
from which the people of the United States can wisely consider 
the subject, the desirability of finding some actual and practi- 
cal cases in the everyday operations of production and exchange, 
in which the tests ''■docs protection really pay" ? or ''how much 
does it specifically cost to protect^' could be fairly applied and 
clearly worked out, has always been acknowledged. The finding 
of such cases and their acceptance by all interested, as satisfac- 
tory, has, however, been thus far most difficult. But in this silver 
business it would seem as if there was sufficient evidence ready 
at hand, unimpeachable and clearly understandable, to allow of 
the making of an approximately fair estimate of the cost to 
the country, present and prospective, of the interference of the 



THE MOST RECENT PHASES OF THE TARIFF QUESTION. I3I 

government, for the sake of artificially fostering and sustaining 
its industries, in at least one case, namely, that of silver-mining. 
And the items of such evidence may be summed up as follows: 
1st. An annual present cost, defrayed by taxation, of $24,000,- 
000 for the purchase of bullion and its conversion into coin, 
which is not only not needed, but which the people seek to avoid 
using. 2d. A present annual loss of interest on some sixty 
millions of silver coin idly hoarded in the vaults of the Treasury, 
which at an estimate of three per cent would represent $1,800,- 
000 per annum ; a no very large sum in the accounts of a nation, 
but which nevertheless represents all the profits, assumed at 
twenty cents per bushel, on the growing by somebody of 
900,000 bushels of wheat. 3d. The loss contingent on the pres- 
ent withdrawing from the channels of domestic trade or foreign 
commerce of some sixty millions in value of an industrial pro- 
duct of the country, and the movement and sale of which in the 
open market and in accordance with natural laws would be no less 
desirable and beneficial than the movement and sale of an equal 
value in bushels of wheat, bales of cotton, tons of lead, or yards 
of cloth. 4th. The loss contingent on the future sale of surplus 
silver by the government at a discount from the prices at which 
it was originally purchased, a r.esult which would seem to be an 
inevitable alternative in the future to a compulsory use of a 
fluctuating depreciated currency. 5th. The immense loss to the 
business and commerce of the country through the derangement 
and depreciation of the currency, which nearly all who have care- 
fully studied the subject are agreed must result from any long 
continuance of the present silver coinage policy — a loss which can- 
not be forecast in figures smaller than hundreds of millions — 
and all this to protect an industry enjoying natural advantages 
of an exceptional character, and the value of the total product of 
which for the year 1881 was only $43,000,000.' 

* There is one other matter of curious interest connected with this silver ex- 
periment to which attention may be also called. The mint is required to pur- 
chase each month at least $2,000,000 worth of silver bullion for the standard 
dollar. It is obvious that these purchases are effected from the proceeds of a like 
amount of Federal taxation. But these dollars are in turn coined by the govern- 
ment at a large profit ; the profit from this coinage alone for the year 1881-2 hav- 
ing amounted to $3,438,829. A pertinent question which now suggests itself is, 
Does not this profit represent a further tax ? Thus, to state the case in detail, the 



132 PRACTICAL ECONOMICS. 

It would seem as if sufficient had now been said to fully 
prove the assertions which have been made the basis of this dis- 
cussion ; namely, that the tariff question before the country is 
rapidly assuming new phases, that public opinion in respect to 
it is in a transition state, and that its introduction into politics 
is unavoidable. 

government purchases 84 cents worth of silver bullion and makes it into a coin of 
a nominal value of $1, and in paying it out obtains a dollar's worth of commodi- 
ties. Is not here an indirect tax of 16 cents for every dollar issued ? Were silver 
alone the currency, a rise in prices would remedy this, as all values would be 
measured by the standard silver dollar. But at present, silver is not even the 
predominant element in the currency; and as the gold dollar is the standard, 
prices do not rise. In short, can the government at any time and in any manner 
obtain any money from the people except through the agency of a gift, a tax, or 
confiscation? 



THE -FOREIGN COMPETITIVE PAUPER LABOR" 
ARGUMENT FOR PROTECTION.' 



T' 



'O all who bestow any attention on the course of public 
events, it must be evident that the so-called ''Foreign 
Competitive Pauper Labor' argument is hereafter to be more than 
ever relied upon to defend and sustain the cause of protection 
in the United States, and that the advocates and believers in 
protection regard such argument as not only all-sufficient for 
this purpose, but also as wholly unanswerable. Or, to state the 
case more plainly and in detail, the claim is set up in warrant 
and justification of a continued high-tariff policy, that the differ- 
ence in wages in favor of competitive foreign producers con- 
stitutes a good and sufficient reason why compensating protec- 
tive duties should be levied on their resulting products when 
imported into this country; and the assertion is further con- 
stantly and conjointly made, that unless such duties continue to 
be levied, the American manufacturer will be unable to with- 
stand foreign competition; that our workshops and factories 
will be closed, and our workmen and their families made de- 
pendent on public charity. It stands to reason, therefore, that 
the issue here involved can be second to none in importance to 
which the attention of the people of the United States can now 
be directed ; and further, that the accusation, which the position of 
the advocates of protection inferentially but necessarily make 
against all those who favor an abatement of the present tariff is 
so serious, as to rightfully subject the latter, if true, to the brand of 
unmitigated public scorn and infamy. But is it true? And with 
a view of helping the public in some degree to intelligently de- 
termine for themselves whether it is or not, it is here proposed 
to attempt to review the whole matter, and present the facts in 

1 Princeton Review. 



133 



134 PRACTICAL ECONOMICS. 

the case, as clearly and impartially as is possible for one who 
frankly acknowledges at the outset that he enters upon the dis- 
cussion with a profound conviction that the assertions and im- 
plied accusations of the protectionists in the matter have not 
only nothing whatever of a substantial basis to rest upon, but 
that the continuance of the policy they advocate will inevitably 
and rapidly produce the very result they deprecate : and indeed 
has already done so, to a very considerable extent. Before 
doing so, however, it may profit to ask attention to certain in- 
cidents connected with the subject of an historical interest. 
Thus, in a little essay recently published (1883) by Mr. Taussig 
of Harvard University, — not in advocacy of either free trade or 
protection, but as a contribution to economic history, — it is 
shown that during the first half of the period of the existence of 
the United States as a nation the demand for protection and 
the claim that it was necessary was based almost exclusively 
upon the " infant industry" argument, or the asserted necessity 
of fostering domestic industries in their incipiency, the eventual 
cheapening of the resulting products being the chief advantage 
that it was proposed to compass; and that the pauper labor 
argument never put in an appearance. But about the year 1840 
it began to be seen that American manufactures could no longer 
consistently claim protection on the ground of being infant in- 
dustries, and that a new position must be taken ; and then for 
the first time, says Mr. Taussig, the claim "that American labor 
should be protected from the competition of less highly-paid 
foreign labor" was brought forward, and has ever since " remained 
the chief consideration impressed upon the popular mind in con- 
nection with the advocacy of a tariff for protection." 

Recurring next to the subject more immediately under discus- 
sion, let it be assumed, for the sake of argument, that all that the 
advocates of protection assert concerning the absolutely and (as 
compared with the United States) the relatively low wages paid 
for labor in the different departments of foreign industry is in all 
respects correct ; and next let it further be granted, that any real 
reduction in the standard of wages, and consequently of living, in 
the United States is most undesirable — and then what of it ? 
Does it necessarily follow, as all advocates of protection invariably 
assume and assert, that the maintenance of a high tariff on for- 



THE ''PAUPER LABOR" ARGUMENT FOR PROTECTION. 1 35 

eign importations will prevent or contribute to prevent the re- 
duction of the wages of American labor and their assimilation 
to the so-called pauper-labor rates of foreign countries ? Or, on 
the contrary, is it not the real truth, that while ''protection" 
has never exerted anything more than a temporary influence in 
enhancing wages, it is now, in virtue of influences clearly and 
unmistakably referable to its policy, directly and powerfully 
operating in a manner exactly the reverse of what is popularly 
believed — or, in other words, to reduce the wages of labor in this 
country, and cause them to approximate to the European stand- 
ard ? Here again is the issue involved restated clearly and 
plainly; and as it is not for the interest of a single man or wo- 
man in the United States to ignore it or be misinformed, let us 
therefore reason about it. 

Wages in the United States are, as a general rule, unques- 
tionably higher than in Europe ; and mainly for the following 
reason. Owing to our great natural advantages, a given amount 
of labor, intelligently applied, will here yield a greater or better 
result than in almost any other country. It has always been so, 
ever since the first settlements within our territory, and has 
been the main cause of the tide of immigration that for the last 
two hundred years has flowed hitherward. Hamilton, in his cele- 
brated report on manufactures, made before any tariff on the 
imports of foreign merchandise into the United States was en- 
acted, notices the fact that wages for similar employments were 
as a rule higher in this country than in Europe ; but he consid- 
ered this as no real obstacle in the way of our successful establish- 
ment of domestic manufactures, for he says " the undertakers" 
— meaning thereby the manufacturers — " can afford to pay 
them." And that this assertion embodies a general truth would 
seem to follow from the following considerations : 

Wages are labor's share of product, and in every healthy busi- 
ness are ultimately paid out of product. No employer of labor 
can continue for any great length of time to pay high wages 
unless his product is large. If it is not, and he attempts it, it is 
only a question of time when his affairs will be wound up by the 
sheriff. Or, on the other hand, if a high rate of wages continues 
to be permanently paid in any industry and in any country, it is 
in itself proof positive that the product of labor is large, that the 



136 PRACTICAL ECONOMICS. 

laborer is entitled to a generous share of it, and that the em- 
ployer can afford to give it him. And if to-morrow our tariff 
was swept out of existence, this natural advantage which, sup- 
posing the same skill and intelligence, is the sole advantage 
which the American laborer has over his foreign competitor, 
would not be diminished to the extent of a fraction of an iota. 
Consider, for example, the American agriculturist. He pays 
higher wages than his foreign competitor. In fact, the differences 
between the wages paid in agriculture in the United States and 
Europe are greater than in any other form of industry. The 
tariff cannot help him, but by increasing the cost of all his in- 
strumentalities of production, greatly injures him. With a sur- 
plus product in excess of any home demand to be disposed of, 
no amount of other domestic industry can determine his prices. 
How then can he undersell all the other nations, and at the same 
time greatly prosper individually ? Simply because of his natural 
advantages of sun, soil, and climate, aided by cheap transporta- 
tion and the use of ingenious machinery, which combined give 
him a greater product in return for his labor than can be ob- 
tained by the laborers in similar competitive industries in any 
other country. What has he to ask of government other than 
it will interfere with him to the least possible extent? 

In further illustration, compare the condition of Switzerland 
with that of the United States. No people are more industrious, 
frugal and moral than the Swiss. They are the Yankees of the 
Old World. No one talks in Switzerland of abridging the hours 
of labor in the interest of the laborer ; but whenever the hand 
finds anything to do, it begins to do it with the rising of the sun, 
and keeps doing with all its might until not " the going down 
thereof," but until the darkness of the night makes further 
effort impracticable. But notwithstanding all this hard work 
and frugal living, Switzerland and her people are poor : wages 
are low, and the comforts and luxuries attainable by the masses 
are comparatively few. On the other hand, the people of the 
United States, working fewer hours and less industriously than 
the Swiss, and living as a rule wastefully and uneconomically, 
are as a whole, the richest people on the face of the globe. What 
is the explanation of this seeming paradox ? There is but one. 
Nature has been niggardly in her bounties to Switzerland ; and 



THE "PAUPER LABOR" ARGUMENT FOR PROTECTION. 1 37 

lavish to the United States ; with the result, that while the 
smallest product, in proportion to the labor and capital applied, 
is the law of production in the former country, the largest 
product at the smallest cost is the law for the latter. In short, 
great resources and large product are natural concomitants ; and 
under such circumstances there is only one thing, under a gov- 
ernment that affords adequate protection to life and property, 
which can prevent capital and labor from securing large rewards, 
i.e., profits and wages — and that is the diversion of their products 
from the channels in which they would naturally flow, by de- 
structive taxation ; to which may be added this further corollary, 
that all taxation is destructive which is excessive and not re- 
stricted to the legitimate requirements of the State. 

Take another case in point. Wages in England, in every in- 
dustry, are much higher than in the continental states of Europe. 
In the cotton-manufacturing industries they are from 30 to 50 
per cent higher than in France, Belgium, and Germany ; and an 
English cotton operative receives more wages in a week than an 
operative similarly employed in Russia can earn in a month. 

Now which of these countries has the cheapest labor? The 
question may be answered by asking in return : Does England 
seek protection against the competition of the continental states 
or is it the continental states that demand protection against 
England ? — and by the further statement of fact, namely, that 
just in proportion as the wages in any country decrease, 
the demand as a general rule in these same countries for pro- 
tection to domestic industries increases, as well as the dread of 
British competition. In short, instead of high industrial re- 
muneration being evidence of high cost of production in this 
country, it is direct evidence of a low cost of production ; and in 
place of being an argument in favor of the necessity of protec- 
tion, it is a demonstration that none is needed. Furthermore, 
all experience shows that as the/^r capita results of production 
become greater, the profits of capital always tend to a less share 
of the product ; and that this must be so will be apparent if 
one reflects that the more effective the capital, the lesser the 
proportion which the capitalist will need (and under competi- 
tion can take) to make good interest upon his investment. In- 
vestigations made by Mr, Edward Atkinson show that, taking 



138 PRACTICAL ECONOMICS. 

the experience of Massachusetts as a basis for reasoning, " ninety 
parts in every hundred of product are divided among those who 
do daily work for their daily bread in that State ; and that ten 
parts in every hundred are the utmost that can ever be set 
aside for the maintenance or increase of capital or wealth." As 
the product increases, labor therefore, in the absence of dis- 
turbing causes, must get a larger share— or in other words, 
wages will rise ; or, to put the case differently, large wages can 
only come from abundance, and not from scarcity. 

High wages, then, are the normal result of low cost, and low 
cost is the normal result in turn of intelligence, conjoined with 
good machinery, applied to great resources for production. 
Wages in the United States, then, are and ought to be high, be- 
cause here are the above conditions in a pre-eminent degree.* 

' Mr. Edwin Chadwick, the distinguished English economist, in a recent 
essay on " Employers' Liability for Accidents to Workpeople," furnishes the 
following very interesting illustrations, drawn from British industrial experiences, 
confirmatory of the above propositions: 

"A coal-cutting machine," he says, "has been invented, by which one man 
and a boy will do better and more safely the work of twenty colliers ; that is to 
say, at present in thick seams. I some time ago asked a large colliery owner 
whether he knew of the machine, and doubted that it would do the work. He 
did know of it, and did not doubt it would work; but they got on as they did, 
and change was troublesome. Recently I asked him whether they, the coal- 
owners, were not sufficiently pressed to have recourse to the machine. ' No, I 
do not think we are,' was the answer. ' I dare say that the Yankees will use it 
first, and then we shall follow them.' In Nottingham, the introduction of more 
complex and more costly machines for the manufacture of lace has, while econo- 
mizing labor, augmented wages to the extent of over 100 per cent. I asked a 
manufacturer of lace whether this large machine could not be worked at the com- 
mon lower wages by any of the workers of the old machine? 'Yes, it might,' 
was the answer, ' but the capital invested in the new machinery is very large, 
and if from drunkenness or misconduct anything happened to the machine, the 
consequence would be very serious.' Instead of taking any man out of the 
streets, as might be done with the low-priced machine, he (the employer) found 
it necessary to go abroad and look for one of better condition, and for such a one 
higher wages must be given." 

Mr. Chadwick quotes an observation made to him by Sir Joseph Whitworth, 
the eminent English mechanical engineer and inventor, that "he cannot affoid 
to have his machines worked with cheap and poor labor ; and also states that the 
English shoe manufacturers, who have recently introduced the ingenious Ameri- 
can shoe-manufacturing machinery, tell him that it paid them the best to work 
these machines with wages that are at least double those which were paid to the 
shoemakers under the old hand system. 



THE ''PAUPER LABOR" ARGUMENT FOR PROTECTION. 139 

But passing from these general conclusions, which may not 
command the assent of the reader without some careful reflec- 
tion, it is proposed to next ask attention to the present indus- 
trial condition of the country, and to the action of certain 
influences on wages, the profits of capital, and the demand for 
domestic labor, which would seem to require to be merely 
pointed out to command universal recognition and acceptance. 

The daily course of events is fast educating our people up 
to a comprehension of the fact, which economists have long 
been predicting, that owing to our great natural resources, our 
rapidly increasing population, the increased use and product of 
machinery and the energy of our people, the power of domestic 
production continually tends to be, and in most departments of 
industry is, far in excess of the power of domestic consumption. 
In the case of agriculture the fact is so obvious that no con- 
firmatory evidence is necessary; but if any is needed, it is all- 
sufficient to call attention to the enormous surplus of food and 
cotton which we now export to other countries, and to the cir- 
cumstance that these exports during the last ten years have 
increased out of all proportion to any increase of our home pop- 

" At the beginning of this century the cost of spinning a pound of yarn (No. 
40) was a shilling, and the wages divided amongst the workers — men, women 
and children— did not average more than 4s. 6d. a week, or 13s. 6d. per week 
per family of three. Recently, the cost of spinning a pound of yarn was three 
half-pence ; but the wages have advanced to 40s. per week. In a paper by M. 
Poulin, a manufacturer at Rheims, France, it appears that in the wool manufac- 
ture there, the progress of wages and machinery have been similar. In 1816 the 
wages were if. 50c. per diem ; they are now 5f. The price of weaving a metre 
of merino cloth was then i6f. ; it is now if. 45c." 

" I might at considerable extent adduce the experience of Lancashire, that 
as a rule the pressure of manufacturing distress has stimulated the adoption of 
labor-saving machinery and putting more and more capital or machinery under 
the same hands, at increased wages, attended by reduced costs of production, by 
extended consumption at reduced prices, and restored and augmented profits of 
capital." 

"Finally," concludes Mr. Chadwick, "it may be noted that whilst all this 
progress has been made, population, which should have diminished, has been 
largely increased by the progress of labor-saving machinery. At the same time 
the profits of capital have largely diminished. At the present time capital is 
beir.-j Iriven to subsist on very small profits, and the quicl<ened turn over of 
large capital. Of late, a poor pinched and distressed capitalist would only get 
for a loan of ;^iooo ($5000) of his capital (accummulated labor) for one day one 
shilling, or a third of the improved day's wages of a spinner." 



140 PRACTICAL ECONOMICS. 

ulation. And in respect to our so-called manufacturing indus- 
tries it is only necessary to refer to general complaint that 
business, tho large (as it necessarily must be to supply the 
needs of a nation of fifty-six millions), is, through excessive 
competition, conducted with little profit ; that a very large per- 
centage of our manufactures, and notably those of iron, cotton, 
and wool, which enjoy high protection, have suspended or cur- 
tailed their operations; that" manufacturers in certain lines of 
the two last-named articles especially have only been able to 
dispose of their surplus stocks by forced sales at auction and 
at prices less than the cost of production ; that failures and fires 
(the latter the inevitable indicator and concomitant of bad times) 
are increasing at a rapid and alarming rate ; that the wages of 
manufacturing operatives almost everywhere throughout the 
country are undergoing extensive and as the manufacturers 
claim, enforced reductions; that the opportunities for employ- 
ment are conjointly becoming limited; and finally, that artisans 
especially imported from foreign countries to work in certain 
employments (^.^., glass-making) in the United States are return- 
ing to Europe, with a view of bettering their condition.' 

The situation is extraordinary and anomalous, but only such 
as might naturally be expected from the circumstances. It 
needs but a superficial glance at our tables of exports to see 
that, comparatively speaking, we have but little other than the 

* The following opinions concerning the present condition of the iron and 
steel industries of the United States have been communicated to the New Yo7-k 
Tribune by Andrew Carnegie, the well-known iron manufacturer of Pennsyl- 
vania, under date of September 24, 1883 : 

" Much as I regret to say it, I believe that matters will grow worse for some 
months before manufacturing interests can reach a profitable business. A much 
more decided curtailment of production must take place before there can be any 
improvement. This will be brought about naturally by the prevalence of such 
ruinous prices as will compel manufacturers to stop producing goods in advance 
of the country's needs. But as great loss is entailed by curtailment of produc- 
tion, the works are kept running to their full capacity, altho prices have 
fallen to figures which leave even those manufacturers who have unusually favor- 
able facilities little or no profit, and entail a positive loss upon the average 
manufacturer. I think the wages paid at the (iron) mills on the seaboard of the 
United Slates to-day are about as low as men can be expected to take. In the 
West, notwithstanding a recent agreement of the men to accept a reduction of 
30 per cent, it now seems probable, from the very unsatisfactory outlook, that 
they will have to be asked to work for still less." 



THE "PAUPER LABOR" ARGUMENT FOR PROTECTION. I4I 

domestic market, and not the whole of that, for our vast and 
varied manufactured product — the ratio of exports for the years 
1878-80 being only 12.5 of manufactured to 87.5 of unmanufac- 
tured commodities, or $102,246,000 of the former to $721,700,000 
of the latter. And to make up even this beggarly 12 per cent 
it was necessary to count in lumber, coal, and leather as manu- 
factured exports. Now it simply stands to reason that if the 
manufacturing industries of the United States are to be mainly 
limited to the requirements of a domestic market, that their 
growth must be also limited, and far below their normal capacity 
and tendencies ; and if, under such limitations, or arrest of indus- 
trial growth, we are to have poured in upon us annually from 
half a million to seven hundred thousand immigrants, — mainly 
laborers in the prime of life, — and an annual increase of our 
population from natural causes of about 3 per cent per annum, 
it would seem also clear that there must be extensive reductions" 
in the wages of American laborers; for with two, three, or more 
sellers of labor for every one buyer, the buyer will fix the price ; 
and the price which the buyer or American employer will strive 
to fix, and indeed the price which his necessities will compel 
him to fix, if he is going to extend his operations and avoid 
producing at a loss, will be such as will enable him to produce 
equally cheap with his foreign competitor. A continuation of 
the present national fiscal policy, or in other words a continua- 
tion of our present high-tariff policy, inevitably means, therefore, 
low wages, and the degradation and impoverishment of the 
masses, or ensures the very results which it is claimed the pro- 
tective policy is certain to avert. And there is no need fur- 
ther of adopting in any degree, in regard to such a conclusion, 
this line of prophecy, for the results in question have in a large 
degree already come, and in the absence of reform, have come 
to stay.^ 

* The extent, however, to which many of even the most intelligent of American 
citizens fail to recognize the condition of affairs into which as a nation we are 
drifting, finds a striking illustration in the following reported extract of a recent 
speech by Hon. J. B. Foraker, one of the candidates for Governor in the State of 
Ohio, during the recent political canvass: "The laborer," he says, "in this 
country is a part of the governing power. He is a voter. He has a voice in the 
government. Aside, therefore, from all humanitarian reasons, we want him to 
have a chance for self-elevation. We want him to eat meat and be comfortable. 



142 PRACTICAL ECONOMICS. 

The main reason why American manufacturers cannot dis- 
pose of their surplus products by exportation and sale of the 
same in foreign markets, admits of a ready understanding, if one 
will only keep in view and reflect upon the following facts: 1st, 
from 80 to 90 per cent of all our manufactures exist because 
they must as a condition of our civilization, and because no for- 
eign products of like kind can be imported. Any one may 
abundantly satisfy himself of this by analyzing the history or 
origin of the bulk of the commodities that pass him on the 
streets of any busy community, or are exposed for sale at the 
marts of trade ; 2d, possibly from 10 to 20 per cent are in a 
greater or less degree subject to foreign competition ; 3d, in 
the effort to protect this 10 to 20 per cent, through the agency 
of taxation and restrictions on exchanges, the cost of all the 
products of our entire industry is enhanced to such an extent 

And for this reason it is that we say if we cannot go into the markets of the world 
without being subjected to an unjust and degrading competition, we will make 
ourselves independent of those markets by making markets of our own. Instead 
of sending our raw cotton across the ocean, to be there manufactured and sent 
back to us, we will have cotton mills here. We will mine our own coal, develop 
our own minerals, manufacture our own iron and steel, build our own railroads 
with our own products, and thus have home markets and domestic commerce." 
Now it is not the intent of the writer to say anything discourteous of a man of 
such high character as Judge Foraker, but it is nevertheless true, that if the above 
remarks are rightfully attributed to him, he certainly had very little idea of what 
he was talking about; for the trouble of to-day with our industry and labor is 
that as a nation we have too exclusively the very home markets he thinks so 
desirable, and are producing more than we can ourselves consume. We export 
at present more than three fifths of our annual product of raw cotton. Suppose, 
instead of sending this enormous quantity "across the ocean," we erect mills, as 
proposed, and spin it ourselves. What will then be done with the product of 
cloth in excess of domestic want? It must be sold abroad, if sold at all ; and if 
sold abroad, the people who buy must pay for it in turn with the products of their 
labor, for they have nothing else to buy with. But this means foreign commerce 
and international trade, which Judge Foraker thinks we can profitably get along 
without. Again, we raise annually many millions of bushels of cereals in excess 
of any possible demand for domestic consumption ; and unless this excess can 
be sold abroad, it will either not be raised, or, if raised, will rot on the ground ; 
and what, under such a condition of affairs, would be the avenues of employment 
open to laborers in mining coal, smelting iron, or building railroads and agricul- 
tural machinery? In short, the system which Judge Foraker proposes is the 
Chinese system of inclusion and exclusion, which the Chinese are preparing to 
abandon ; and his remedy more of the hair of the same dog that has already 
sorely bitten us. 



THB 'PAUPER LABOR'' ARGUMENT FOR PROTECTION. 143 

that exports only exist in cases where our natural advantages for 
production are so great as to overcome the increase of cost thus 
artificially and unnaturally created.' And as confirmatory evi- 
dence, if not absolute demonstration, of the truth of this state- 
ment, attention is here asked to the results of an investigation 
in the last Report (1883) of the Massachusetts " Bureau of Labor 
Statistics," which altho constituting a contribution to economic 
science of surpassing interest, and of such a nature as ought 
to startle every fair-minded American citizen who has been edu- 
cated to believe that our present high protective policy really 
works for the benefit of domestic labor and capital, has thus far, 
very curiously, almost entirely escaped public attention. In this 
report a very careful analysis is made of the comparative condi- 
tion of 2240 manufacturing establishments in Massachusetts, 
representing 21 different industries and 207,798 employees, for 
the years 1875 and 1880 respectively; the elements of the analy- 

* The following tables and estimates, deduced from the census of 1880, will 
afford approximately correct data for estimating the method in which the bur- 
den of the taxation imposed to maintain the protective policy of the United 
States distributes itself among population, occupations, and professions : 

OCCUPATIONS OF THE PEOPLE OF THE UNITED STATES IN 1880. 

Agriculture. 7,670,493 

Professional and personal service 4,074,238 

Trade and transportation o 1,810,256 

Manufacturing, mechanical, and mining industries 3,837,112 



Total 17,392,099 

Proportion engaged in agriculture who may possibly be 
subjected to foreign competition in some manner — 
mainly the growers of sugar and of rice, and of wool 
possibly, to a very small extent, about 5 per cent, or 400,000 
Proportion engaged in manufacturing, mechanical, and 
mining industries, who can be in part but not wholly 
subjected to foreign competition — large estimate 
based on calculation 837,112 

Total 1,237,112 

Proportion that are heavily taxed, and placed at a dis- 
advantage in agriculture, manufactures, mechanical 
pursuits, and in mining, by the protective system. .. 16,154,989 

Proportion in wfiose ravor tfte protective system is in- 
voked, but wnosc wages are nt/t lower than in other 
employments 1,237,112 



144 PRACTICAL ECONOMICS. 

sis being the census returns made to the Federal and State Gov- 
ernments respecting capital, laborers, value of sto.ck used and of 
product, cost of management, profits, etc., in the years specified, 
which are acknowledged to be as reliable as any such returns 
possibly can be, and as probably superior to any similar statistics 
ever before collected. The 2240 establishments also employed 
53 per cent of the invested capital, paid 58 per cent of wages, 
used 57 per cent of the stock, and produced 57 per cent of the 
entire manufactures of the State. Premising further that Mas- 
sachusetts practically produces none of the stock or raw mate- 
rial which its manufacturers use, but buys almost everything from 
beyond her borders, the investigation shows that the stock — 
metals, fibres, leather, coal, lumber, chemicals, and the like — used 
in manufacturing in that State in 1880, cost 11.52 percent more 
than it did in 1875 ; and that the manufacturers, as the report 
expresses it, " counterbalanced " this result by reducing the 
wages of their employees during the period involved to the 
extent, on an average, of 4.35 per cent, and by submitting to a 
reduction of their net profit of 7.19 per cent. Now, when it is 
remembered that the prices of manufacturers' raw materials have 
notably declined in all foreign competitive countries during the 
period covered by the Massachusetts analysis; that the wages 
of foreign competitive labor during the same time have also very 
generally advanced ; and that, apart from possible differences 
in the wages of labor, Massachusetts industries, in comparison 
with foreign industries, are not only not subjected to any special 
disabilities, but on the contrary enjoy many advantages — it seems 
clear that the extraordinary results under consideration cannot 
be referred to any other agency than that of our present national 
fiscal policy, which, as above pointed out, does by excessive tax- 
ation and restriction of exchanges inevitably enhance the cost 
of all manufactured commodities and their elements. And if 
other evidence in support of this conclusion were needed, it is so 
abundant that the only dif^culty attendant is to decide what to 
present ; as, for example, the fact brought out before the Mas- 
sachusetts Legislature at its last session (1883), that in respect 
to certain shoes, for which there might naturally be a large 
domestic demand to supply the requirements of tropical coun- 
tries, the cost of the Massachusetts-made shoes is enhanced to 



THE ''PAUPER LABOR'' ARGUMENT FOR PROTECTION. I45 

the extent of 60 cents per pair before the manufacture even 
begins, by reason of the taxes on their constituent materials ; 
that cordage manufactured in New York of imported materials 
(which the country cannot produce) can be, and actually is, 
through a rebate of duties, sent to China and Brazil and sold 
there for the equipment of foreign ships, cheaper than an Ameri- 
can ship-owner can buy it within one mile of the factory where 
it is made ; and that, for the same reason, salmon packed in tin 
on the Columbia River can be transported by rail and sold 
cheaper to the people of New Brunswick for food than the peo- 
ple of Maine, many miles farther east, can buy it. Indeed, 
were it not joking on a serious subject, there could be no more 
fitting comment on the situation than to recall the lines of 
" Truthful James" when he says : 

" Then I looked up at Nye, 
And he gazed upon me ; 
And he rose with a sigh, 
And said, 'Can this be? 
We are ruined by Chinese (foreign) cheap labor!'" 

It is not overlooked in connection with this discussion that 
the complaint of overproduction, restricted markets, and no 
profits in business, by reason of excessive competition, is at 
this time general in all commercial countries, and especially in 
Great Britain, where protection as an element of disturbance is 
wanting; and that, therefore, the reference here made of the 
existing unsatisfactory state of affairs in the United States to 
our national fiscal policy may seem to not a few to be unsound 
both in respect to facts and logic. That there have been great 
disturbances in the work of production and exchange of most 
countries in recent years, and, taking the world throughout, 
most notably since 1873, and that these disturbances still con- 
tinue, is not to be denied. And the explanation of it is refer- 
able, in the opinion of the writer, in a very large degree to a 
class of agencies which have not thus far received the attention 
from economists and publicists which they merit ; namely, the 
wonderful changes which through invention and discovery have 
recently taken place in the world's method of doing its work of 
production and distribution. These changes have been accom- 
panied with immense losses of capital and great disturbances of 



146 PRACTICAL ECONOMICS. 

labor, in which the United States has participated and suffered 
in common with other countries. That their ultimate outcome, 
however, is to be good, cannot be doubted; for by an economic 
law, which Mr. Atkinson, of Boston, more than others, has 
recognized and formulated, all material progress is affected 
through the destruction of capital by invention and discovery, 
and that the rapidity of such destruction is the best indicator 
of the rapidity of progress.' But in the readjustment by na- 
tions of their industries to the new circumstances, which is still 
going on and is yet very far from complete, the "law of the 
survival of the fittest" is going to fully assert itself; and in this 
struggle the United States, by reason of possessing as no other 
nation does, the conditions for the cheapest production of the 
great staple commodities of the world's consumption, ought 
to prove itself the fittest, and dominate in " manufactures" as it 
now dominates in respect to the production of cotton and food 
products. Why such a result has not yet been attained ; why 
in the readjustment of industries to the new conditions, the 
United States suffers disproportionately, or even as much as 
her chief industrial competitor, Great Britain ; and why under 
the present national fiscal policy there is little chance for im- 
provement — finds a sufficient explanation and answer in the 
results of the Massachusetts industrial investigation before re- 
ferred to, even without taking into account a vast amount of 
other corresponding and confirmatory evidence. ° 

' Every man who is trying to make some new labor-saving invention or dis- 
covery is trying at the same time to practically destroy the value of previously 
accumulated labor or capital. If an invention could be made to-morrow which, 
at no greater cost, could spin or weave ten per cent more of cotton fibre in a 
given time than is now practicable, all the existing cotton machinery of the world, 
now representing hundreds of millions of dollars of expenditure, would be worth 
little more than old metal. By the discovery within the last decade of a method 
of manufacturing the coloring principle of madder (the principal coloring mate- 
rial used in printing calicoes), three or four factories in Germany and England 
employing but a few hundred men were substituted for hundreds of thousands 
of acres of land and thousands of laborers which had been before devoted to the 
cultivation of the madder plant. So also the construction of the Suez Canal is 
said to have practically rendered worthless over 2,000,000 tons of British ship- 
ping which, built for the India trade zna the Cape of Good Sope and not fitted 
for the canal, was no longer wanted. 

^ A recent writer in the British Boot and Shoe yournal, after noticing the 
testimony given before the Massachusetts Legislature last winter, to the effect 



THE "PAUPER LABOR" ARGUMENT FOR PROTECTION. 1 47 

Coming back now more directly to the "pauper-labor" argu- 
ment : there is no question that there is a great amount of 
poorly paid, half-starved labor in Europe and other countries. 
But what, let us inquire, is its true relation, from a purely prac- 
tical, business point of view, to the laborers and industries of 
the United States? Apart from agriculture, in the sphere of 
which industry we have no formidable competitors, inasmuch 
as we can profitably undersell the products of the poorest paid 
labor in the world, — the peasants of Russia and Hungary, the 
fellahs of Egypt, and the ryots of India,— the dreaded pauper 
of foreign countries is engaged mainly in handicraft, as contra- 
distinguished from machinery manufacturing; as, for example, 
in the manufacture of pottery, where the laborer works almost 
exactly as did his predecessor four thousand years ago ; or in 
the case of silk-ribbon weavers, whom a recent correspondent 
of the New York Tribune describes as operating their hand- 
looms in poor, ill-ventilated cottages, and in the same rooms in 
which the operatives eat and sleep. And apart from pottery 
and silk, a great variety of other products manufactured or pro- 
duced under similar conditions might be mentioned. In the 
case of Europe, the people who work at these handicrafts live 
for the most part in the most densely populated districts, where 
all natural advantages and opportunities for employment have 
long ago been exhausted, and where the moral inertia conse- 
quent on lack of intelligence or means is an almost insuper- 
able obstacle in the way of any attempt on the part of the 
laborer to improve his situation by engaging in other pursuits, 
or by emigration. Under such circumstances wages are un- 
doubtedly very low, and the protectionist, in view of this fact, 

that the existing capital and labor at present engaged in the manufacture of shoes 
in the United States is sufficient, if fully employed for nine months, to supply any 
current market demand for the entire year, the recent failures in the shoe indus- 
try, and the general tendency to a reduction of wages in this and every other 
branch of industry in the United States, thus pertinently comments on the situa- 
tion: "One may here [England] ask, Where are the advantages and disadvan- 
tages of protection to the shoe trade? We have in this country [England] 
certainly not so much trade as could be done, but, nevertheless, we have a trade 
which exists all the year round; we have in addition a considerable export trade 
and the wages of our workmen have advanced rather than declined. Our cousins 
across the Atlantic have six or eight months' home trade, no export, and a falling 
labor market. Surely the comparison should be deterrent enough." 



148 PRACTICAL ECONOAflCS. 

asks us, with a sort of *' now-I-have-got-you air," how can we, 
apart from the protection afforded by the tariff, enter .into 
successful competition with them, except by bringing down 
the wages of our laborers to a level with the wages of these 
paupers? But, in the name of common-sense, why should we 
as a nation desire to attempt any such competition? What 
possible reason or inducement is there for wanting to introduce 
these handicraft industries into this country, and of attempting 
to keep them alive by means of enormous taxes levied under 
the tariff upon the whole people, — as, for example, 60 per cent 
upon silks, and from 60 to 100 per cent on earthenware and 
crockery, — when we can buy all we want of these products with 
a very small part of the excess of our cotton and grain ; and 
which excess, it ought to be especially borne in mind, if not 
sent out of the country and exchanged for some products of 
foreign labor, will either not be raised, or if raised, will rot in 
the ground? The main thing which pauper laborers in Europe 
and everywhere else want is food ; food beyond everything else, 
for they are starving. And when it is proclaimed, with real or 
feigned fright and horror, by political orators and partisans, that 
these people are willing to work for fifteen or twenty cents per 
day, the proclamation means that they are willing to give the re- 
sults of each and every day of their hard and often disagreeable 
and degrading labor, in making things which the American agri- 
culturist wants and cannot advantageously produce himself, for 
one fourth of a bushel of wheat, one half a bushel of corn, two 
pounds of beef, or three of pork or lard, products which repre- 
sent but a fraction of a day's labor in the United States. For 
this is the basis on which the pauper laborer of foreign coun- 
tries, working for fifteen to twenty cents per day, is going to 
exchange with us, if he exchanges at all. Certainly it would 
seem that there is nothing which the agricultural interest of the 
United States, which represents directly or indirectly three 
fourths of our entire population, could do to profit itself more 
than to encourage such exchanges. 

Consider next the relation of this same bugbear of foreign 
competitive pauper labor to such of our manufacturing indus- 
tries as rely mainly on machinery for the work of production. 
In regard to a majority of these, there can be no doubt that 



THE "PAUPER LABOR" ARGUMENT FOR PROTECTION. 1 49 

their representative manufacturers would be able to defy the 
competition of the world if the burden of taxation was re- 
moved, to the extent that it is in Great Britain, from the mate- 
rials which enter into their products, and from tools and 
machinery, and from many of the commodities which are essen- 
tial to the living and comfort of their employees, and the 
continuance of which is no longer needed to meet any necessi- 
ties of the state for revenue. Where the use of machinery — 
especially of a complex kind— which is the kind mainly used in 
the manufacture of the world's great staple products, and in the 
invention and application of which the United States especially 
excels — forms an important factor in the work of production, 
the cost of the wages paid to the people who work such machin- 
ery forms no criterion of the cost of the goods which are the 
resulting product. In all such cases " it is the operative that 
earns the highest wages who compasses the lowest cost of pro- 
duction ;" and whoever doubts or fails to comprehend these 
propositions has not yet grasped the A B C of the subject. 
Thus, for example, when the product of one day's labor in the 
manufacture of cotton cloth in the United States, properly 
apportioned and with the aid of machinery, is equivalent to the 
product of at least twenty days' labor for a like purpose in 
China, Central America, and other semi-civilized countries (as is 
the case), it is a matter of very little consequence whether the 
laborers who grow the cotton in Texas or spin and weave it 
in New England receive a greater or less number of dollars 
per week for their wages; for the question as to who shall 
command the markets of such countries turns up other and 
entirely different considerations. To-day the poorest paid 
labor in the world, namely, that of the natives of India, will be 
glad to work for twelve and a half cents per day, making bag- 
ging (gunny-cloth) to bale American cotton out of the fibre of 
the^te ; but the American manufacturer, paying from seven 
to ten times as much per day to women operatives, can make a 
better article so much cheaper, that the Indian producer has 
been practically driven from the field of competition in this 
country. And yet, so long as the Federal Government con- 
tinues to levy a tax of six dollars per ton on the fibre which the 
American manufacturer uses there is very little chance for 



150 PRACTICAL ECONOMICS. 

the latter to sell the results of his ingenious machinery and 
highly paid labor in any other than his own country; and so a 
large number of the American bagging mills are now idle, and 
the home market is glutted with their unsold products. The 
case of the miserably paid women and children in the " black 
country" of England has recently been cited by a correspond- 
ent of the N. Y. Tribune as a fearful example of what the 
working men and women of the United States would be sub- 
jected to if they should undertake to make nails in the absence 
of a high protective tariff on the importation of nails, when the 
truth is that the logic is all the other way, and it is the English 
laborer who needs to be protected against the American, and 
not the American against the English pauper; inasmuch as the 
latter, if he will persist in making nails by hand, has got to com- 
pete against machines of American invention which can make 
more nails in one hour than the paupers working by hand can 
make in a day, and at less than a tenth of the expense. To 
which it may be added, that the operatives who work the 
American machines receive almost the highest wages paid in 
the United States in any department of mechanical industry. 

One of the most novel and interesting illustrations, which the 
writer has recently met with, of the absurdity and fallacy of 
much of the current averment of the necessity for protection 
for such a country as the United States against the competitive 
pauper labor of foreign countries, is given in Senior's " Conversa- 
tions and Journals in Egypt," (London, 1882). Mr. Senior was an 
English lawyer and economist of high standing, who some years 
ago visited Egypt in company with a celebrated British 
engineer, Mr. McLean, and in the course of their travels the 
two visited the Pyramids; and while on the ground speculated 
concerning the cost and the amount of labor entering into these 
great structures. " I asked Mr. McLean," writes Mr. Senior 
(pp. 63, 64), " for what he could reproduce the largest of them 
on a spot in the immediate neighborhood, as in their case, of a 
quarry. He said, roughly estimating theii" contents at 80,000,000 
cubic feet, and the cost at 3d. (six cents) per cubic foot, for a 
million sterling. It appears that their contents are 88,000,000 
cubic feet. The cost, therefore, would be ^62,500 more — in all, 
;^i,o62, 500" (or $5,310,000). McLean: "There would not be the 



THE ''PAUPER LABOR" ARGUMENT FOR PROTECTION. 151 

least difficulty in the performance, and with 25,000 men I could 
do it in one year; with 2500 men in ten years and turn out 
a much better article." SENIOR: " For what could you build a 
pyramid in England?" McLean : " I cannot answer that ques- 
tion without knowing what I should have to pay for the stone 
— that is, for permission to extract it. Let me have the use of 
the quarry for nothing, and I think a pyramid could be built 
nearly as cheaply in England as in Egypt. It is true that labor 
is four times as dear in England as in Egypt, as our laborers re- 
ceive three shillings a day where the Egyptians receive a six- 
pence, and our men do only two thirds more work; but our skill 
and our mechanical contrivances nearly make up the difference." 

Now if pyramids were an article of international trade, i.e., 
of demand and supply, and the question of wages was to be 
held to be determinative of what country should furnish them, 
it would seem impossible for the English laborer to engage in 
the pyramid business without being largely protected against 
the pauper labor of Egypt, when the real truth would be that 
it was the Egyptian pauper, working for sixpence a day and 
finding himself, that needed large protection against the com- 
paratively high-priced Englishman, and that even then he could 
only supply a comparatively restricted demand of his own local 
market for pyramids. 

Further evidence to the same effect might be adduced to 
almost any extent ; but enough, it is believed, has been said to 
abundantly prove, that instead of fearing the competition of 
foreign pauper laborers, who are paupers mainly because of the 
absence of natural advantages and a lack of the ownership 
and use of machinery, we ought rather to welcome it and 
recognize that there is no way in which as a nation we can so 
rapidly and certainly enrich ourselves as by exchanging the 
products of our skill and machinery, representing but a com- 
paratively small amount of labor, with the products of the so- 
called foreign pauper laborers, representing a comparatively 
large amount of labor. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS/ 



THE term " political economy" has had many, and to some 
extent discordant, definitions. As a department of knowl- 
edge all will, however, probably agree that its object is to en- 
deavor to learn from the experience of mankind the conditions for 
the production, accumulation, and distribution of wealth (using 
the term " wealth" in the sense of abundance of all material good, 
and the results which flow from such abundance), and to deduce 
from such conditions the rules or principles which, w^hen adopted 
as the guide for human action, will best determine and facilitate 
progress in this same direction for the future. Again, some 
deny that political economy is entitled to be called a science. 
But be this as it may, all will probably further agree that, in 
common with political, mental, and moral philosophy, it is not 
an exact science in the sense that the physical sciences are so 
considered ; inasmuch as it is founded on the results of human 
action, which vary greatly under different conditions and influ- 
ences, and the record of which is rarely so complete and un^ 
questionable as to compel universal and unqualified acceptance ; 
whereas the natural laws constituting the basis of the physical 
sciences are so universal and unvariable, and so well defined 
and accepted, that deductions can be made from them with the 
utmost certainty. Under such circumstances, it would seem 
that the most important contribution which could be made to 
the history and progress of political economy would be a full 
and unquestionable record of the results of a large and complete 
experience in respect to any one of the subjects which are 
acknowledged to be embraced within its sphere of inquiry and 
consideration ; and such a contribution, it is believed, can now 
be made in the record of the recent experience of the Govern- 
ment of the United States in obtaining revenue through taxa- 

' Princeton Review. 
152 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 53 

tion of the domestic manufacture and sale of distilled spirits. 
This record it is now proposed to make more completely than 
has ever before been attempted ; and as the personal experiences 
of the writer as a former official of the Government largely 
intrusted with the supervision of this department of the national 
revenues forms a not unimportant part of the record, no fur- 
ther apology, it is thought, will be needed for making the nar- 
ration to some extent autobiographical in its character. 

As the manufacture of distilled spirits in some form exists, 
and always has existed, among all civilized nations, and as the 
use of the article is always constant and extensive, generally 
immoderate, and largely voluntary and as a matter of pure 
luxury, nearly all governments have come to regard it as an 
eminently proper and productive source for the obtaining of 
revenue through the agency of taxation. Such taxation accord- 
ingly forms an essential feature of the fiscal systems of most of 
the European States ; but in three only — Great Britain, France, 
and Russia — are the present taxes so large and productive as to 
call for any particular notice. Thus, in Great Britain the taxa- 
tion of distilled spirits is (1884) at the rate of los. ($2.50) per 
imperial proof-gallon' of 27^^^-^-^ cubic inches; which would be 
equivalent to ys. ^d. ($1.83) on the wine-gallon of 231 cubic 
inches, which is adopted as the American standard. It is also 
to be noted in this connection that the first cost of British spirits 
ranges, according to the price of grain from which they are dis- 
tilled, from i.y. 6d. (37I cents) to 2s. (50 cents) per imperial proof- 
gallon ; while the first cost of the American product ranges 
from 17 to 24 cents per wine-gallon; thus making the excise on 
British spirits range from five to six and a half times the first 
cost of production ; while a tax of $2 on the wine-gallon of proof- 
spirits, as formerly imposed in the United States, was equivalent 
to from eight to twelve times their first cost. The revenue col- 
lected from distilled spirits under the excise in Great Britain for 
the fiscal year 1883 (apart from licenses for the sale of the same) 
was i^i4,2i 1,490 ($71,057,450), as compared with ^^14,273,786 
in 1882 and ;^I4,393,572 in 1881. The amount which accrued in 
addition to the British revenue during the year 1883 from spirit 

' By proof gallon is understood a mixture of equal parts of pure alcohol and 
water. 



154 rRAC TIC A I. E CO NO Mies. 

distillers', dealers', and publicans' licenses was ;^i,598,8o3 
($7,991,015), as compared with ;^i,6oi,985 from the same sources 
in 1882 and ;^i, 570,955 in 1881. From 1660, the year when 
taxes on domestic distilled spirits were granted " by Parliament 
to Charles II. and" his successors forever, as full compensation" 
for loss of payments previously "due by landholders to the 
crown," down to and including the receipts of the year 1883, 
the amount of revenue that the British Exchequer has obtained 
from this single department of excise or internal taxation has 
been estimated at the enormous sum of ;^6 14,994, 896, or 
$3,074,974,480. (See " Financial Reform Almanac," London, 
1884). 

In France the budget for 1876 estimates the receipts of in- 
ternal revenue from the tax on liquors at 364,190,000 francs, or 
$72,858,000. 

In Russia the manufacture and sale of distilled spirits is a 
strict government monopoly, — the government in the first in- 
stance selling the privilege of dealing in the article ; and sec- 
ondly, reserving to itself the right of distilling all domestic 
liquors, and supplying the same to dealers at a present rate of 
about one dollar (gold) per gallon. The aggregate consumption 
of the common distilled spirits of Russia (termed " ?W/t'/") is 
very great, and of the entire income of the government from 
ordinary sources more than one third is believed to be derived 
from the manufacture and sale of domestic liquors. In the 
budget for 1872 the net receipts were estimated at ^61,899,000, 
of which i^2 1,500,000 ($107,500,000) were credited to excise 
taxes on spirits and beer. 

The first attempt of the United States to obtain revenue 
through the taxation of domestic distilled spirits was author- 
ized by the first Congress under the Constitution, and under 
a law that went into operation in 1791. Altho the rate 
of taxation imposed was comparatively moderate, — ranging 
from nine to tivcnty-five cents per gallon, according to the 
strength of the spirits, with an abatement of two cents per 
gallon for cash payments, — and altho the necessities of the new 
Government for revenue were most imperative, the enactment 
of this law provoked great opposition and resistance ; and in 
1794 the counties of Western Pennsylvania rose in insurrection 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 155 

against its enforcement. A proclamation by President Wash- 
ington commanding the insurgents to disarm and disperse was 
in the first instance entirely disregarded ; and it was not until 
an armed force, collected from the militia of the other States, 
had marched to the centre of the disturbed district and had 
arrested the ringleaders that the authority of the Federal Gov- 
ernment was restored. As further illustrating the very serious 
character of this insurrection, it may be noted, that the cost of 
its suppression was one and a half millions of dollars, and that at 
a time when the aggregate annual expenditures of the Federal 
Government for all ordinary purposes were only about four 
millions of dollars. The amount of distilled spirits produced in 
the United States at the time of the enactment of the tax-law 
of 1791 was estimated by Alexander Hamilton, then Secretary 
of the Treasury, at 6,500,000 gallons, of which 3,500,000 gallons 
was believed to be the product of the distillation of foreign 
materials, — mainly molasses, imported largely by New England 
from the West Indies for the manufacture of rum,— and of which 
product from 300,000 to 500,000 gallons were sent annually at 
that time from the same section of country to Africa for the 
purchase of slaves.' Allowing 6,000,000 of gallons for domestic 
consumption, the per capita consumption of distilled spirits in 
the United States during this period must have been about one 
and a half gallons (1.52). 

Upon the accession of Mr. Jefferson to the Presidency in 
1800, and upon his recommendation, the obnoxious spirit-tax, 
in common with all other internal-revenue taxes, was repealed. 
In 181 3, as the result of the war with Great Britain, it became 
necessary for the Federal Government to again resort to the 
collection of an internal revenue, and of the system then enacted 
the taxation of domestic distilled spirits through the agency of 
licenses for distilleries formed a part. With the close of the 
war, however, all these taxes were again and soon repealed, and 
from 1818-22 to 1862, or for a period of more than forty years, 

1 OfBcial documents show that from 1804 to 1807 inclusive 202 cargoes of 
negro slaves were brought into Charleston, S. C. Of these slaves 3914 were 
sold for account of persons residing in Bristol, R. I.; 3488 for Newport, R. I.; 
556 for Providence, R. I.; 280 for Warren, R. I.; 200 for Boston, Mass.; and 
250 for Hartford, Conn. This was, it will be observed, at only one port in the 
South, and during a period of only four years. 



156 PRACTICAL ECONOMICS. 

the Federal Government levied no direct taxes upon any pro- 
cess or result of domestic industry, nor any excise, stamp, or 
income taxes, nor any direct taxes upon real property; the ex- 
penses of a simple and economic administration, and the pay- 
ment of the interest and principal of a small public debt, — never 
in excess at any one time of twenty-one millions, — being defrayed 
almost entirely by indirect taxes, levied in the form of a light 
tariff on the importation of foreign goods and merchandise. 

It was then with such antecedents, and under such condi- 
tions in respect to taxation, that the nation found itself, in the 
spring of 1861, suddenly and unexpectedly involved in a gigan- 
tic civil war, in which its very existence was threatened by the 
uprising of at least a third of its population against the legiti- 
mate and regularly constituted authorities. The most urgent and 
important requirement of the Federal Government at the outset 
was for money. Men in excess of any immediate necessity vol- 
unteered for service in the army ; but to equip and supply even 
such as were needed required a large expenditure, and for de- 
fraying it there was, on the part of the Government, neither 
money, credit, nor any adequate system of raising money by 
taxation. Furthermore, as the necessities of the Government 
developed and became more urgent, there also developed on 
the part of Congress and the Federal officials a most remarkable 
timidity and muddle of ideas respecting the financial situation. 
From the very outset all direct or internal taxation was avoided; 
there having been an apprehension on the part of Congress that, 
inasmuch as the existing generation had never been accustomed 
to it, and as all machinery for assessment and collection was 
wholly wanting, its adoption would create discontent and 
thereby interfere with the vigorous prosecution of hostilities. It 
would be foreign to the purpose of this special discussion to 
here notice the various substitutes for obtaining revenue that 
were resorted to by the Federal Government in addition to the 
increase of the tariff on imports, — such as loans from the banks, 
the issue of Treasury notes payable on demand, the apportion- 
ment of a direct tax among the States, and an income-tax of 3 
per cent on the excess of all incomes over $800 ; the first to take 
effect eight and the latter ten months after the date of enact- 
ment; — and it is sufficient to say that it was not until July, 1862, 



O'UR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 57 

or nearly fifteen months after the outbreak of the war, that any 
systematic scheme for internal taxation was devised and put 
into operation. And of this scheme, as might naturally have been 
anticipated, the taxation of the domestic manufacture and sale 
of distilled spirits constituted a leading feature. 

For a period of nearly a half-century previous, the manufacture 
of spirits in the United States, as already stated, had been free 
from all specific taxation or supervision by either the national or 
State governments ; and being produced mainly from Indian 
corn, at places adjacent to the localities where this cereal was 
cultivated, and to a large extent also from corn that was damaged 
and so otherwise unmarketable, was afforded at a very low price ; 
the average market-price in New York for the four years next 
preceding 1862 having been about 23 cents per proof-gallon, with 
a minimum price during the same time of 14 cents per gallon. 
In Cincinnati the market-price of whiskey for August, 1861, was 
commercially reported as "closing dull" at 13 cents per gallon. 
The price of alcohol in New York during the period above 
noted ranged from 40 to 60 cents per gallon. Under such cir- 
cumstances, the consumption of distilled spirits in the United 
States previous to the war, for a great variety of purposes, 
had become enormous ; affording a practical illustration of the 
curious varying relations between prices and consumption, and 
also of what maybe considered in the light of an axiom in politi- 
cal economy, namely, that practically there is almost no limit 
to the consumption of any useful commodity, provided that 
through a reduction of cost or price it is brought within the pur- 
chasing power of those who desire to consume. Thus, for the 
year ending June, i860, the product of distilled spirits in the 
United States, as returned by the Census, was 89,308,581 gal- 
lons (proof-spirit) ; or including alcohol, 90,412,581 gallons (as 
compared with a present taxed product and consumption in 
Great Britain of about thirty millions of gallons) ; and this aggre- 
gate, subsequent investigations proved, was considerably less, 
rather than in excess of, the actual production. The max- 
imum quantity of domestic distilled spirits exported in any one 
year previous to the war was never in excess of 3,000,000 of gal- 
lons ; so that the annual consumption of domestic spirits in the 
United States in i860, for all purposes, was at the rate of nearly 



158 PR A C TIC A L E CO NO MIC S. 

three gallons for every man, woman, and child of the popula- 
tion. 

It would be an error, however, to assume that all of this 
immense production of spirits was used for intoxicating pur- 
poses or in the way of stimulants, inasmuch as the extreme 
cheapness of proof-spirits and of alcohol in the United States 
at the period under consideration occasioned their employment 
in large quantities for various purposes which were absolutely 
or almost unknown in Europe, where the price of these same 
products, through the fiscal necessities of the various govern- 
ments, has always been made so artificially high as to greatly 
limit their industrial application. Thus one of these employ- 
ments, peculiar to the United States at this time, was the manu- 
facture of a cheap illuminating agent known as " burning-fluid," 
composed of one part of rectified spirits of turpentine mixed 
with from four to five parts of alcohol, each gallon of alcohol 
thus used requiring 1.88 gallons of proof-spirits for its manu- 
facture. The use of this preparation in the United States in 
i860, in places where coal-gas was not available, was all but uni- 
versal, and necessitated a production and consumption of at 
least twenty-five millions of gallons of proof-spirits per annum, 
which in turn would have required the production and use 
of from ten to twelve milHons of bushels of corn. And so 
extensive was the scale on which its manufacture was con- 
ducted, that in Cincinnati alone the amount of alcohol required 
every twenty-four hours for this industry was equivalent to the 
distillate of 12,000 bushels of corn. Here, then, had been grad- 
ually created a new, peculiar, and large market, for one of the 
staple products of American agriculture, and also for the pecu- 
har product — turpentine— of mainly one agricultural State, 
North Carolina. The excessive cheapness of alcohol also led to 
its most extensive use for fuel in manufacturing, and in domes- 
tic culinary operations ; for bathing and cleaning ; for the manu- 
facture of varnishes, vinegar, imitation wines, flavoring extracts, 
perfumery, patent medicines, white-lead, percussion caps, hats, 
photographs, tobacco, and a great variety of other purposes. It 
is also to be noted as a curious part of this history that nearly 
all preparations, washes, and dyes for the hair, which at that 
time in other countries — as now almost universally — were pre- 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 59 

pared almost exclusively on a basis of fats or oils or some non< 
spirituous liquids, were in the United States then composed al- 
most wholly on a basis of alcohol, the comparative difference in 
the price of this article in the United States and Europe giving 
an entirely different composition to products of large consump- 
tion intended to effect a common object. The transcript of the 
sales of a single distillery and rectifying establishment in New 
York City, put in as evidence before the U. S. Revenue Com- 
mission of 1865, showed sales in a single year of 19,040 gallons 
of alcohol in one case, and 12,657 in another, to two manu- 
facturers of different popular hair washes and tonics. From the 
same firm a manufacturer of an " extract of sarsapariila" bought 
in one year 81,300 gallons; and another manufacturer w^ho 
made a " pain-killer," 41,195 gallons. A single firm of patent- 
medicine proprietors in Massachusetts testified their consump- 
tion of distilled spirits to have averaged one hundred thousand 
gallons per annum ; while another in Western New York, engaged 
simply in the manufacture of a horse-medicine, reported a con- 
sumption, prior to the imposition of internal-revenue taxa- 
tion, of upwards of 50,000 gallons of proof-spirits annually. In- 
dividual hair-dressers in the large cities also testified that the 
use of 400 gallons of alcohol (equal to 750 gallons of proof- 
spirits) yearly in their local business was not an unusual circum- 
stance. 

For the manufacture of imitation wines the demand for dis- 
tilled spirits in the United States prior to 1864 was also very 
large ; four firms in the city of New York reporting a consump- 
of 225,000 gallons of pure spirits for this purpose during the 
year 1863. Large quantities of neutral or pure spirits were also 
used at the time in the United States for the " fortifying" of 
cider, to prevent or retard acidification^especially in the case 
of cider intended for export to tropical countries, to the South- 
ern States, or to the Pacific. One distiller in Western New York 
reported a regular sale, during the year 1862, of eight thousand 
gallons per month for this purpose exclusively. 

The first tax imposed by Congress on distilled spirits of do- 
mestic production was 20 cents per proof-gallon, and went 
into effect on the 1st of July, 1862. This tax continued in 
force until March 7th, 1864, when the rate was advanced to 



1 6o PR AC TIC A L ■ E CONOMICS. 

60 cents per gallon. On the ist of July, less than four 
months subsequently, the rate was again raised to $1,50 per gal- 
lon, and on the 1st of January, 1865, six months later, it was 
further and finally advanced to $2 per gallon. In addition to 
these specific taxes heavy additional taxes on the mixing, com- 
pounding, and wholesale and retail dealing in spirits were also 
imposed in the way of licenses. 

The immediate effect of this imposition and rapid increase 
of internal taxes upon distilled spirits was a series of industrial 
and commercial phenomena, more remarkable than anything of 
the kind before recorded in economic history ; and yet so com- 
pletely was the attention of the American people engrossed at 
this time in other and greater events — events affecting their 
very existence as a nation — that the results referred to did not 
so much as create a ripple in public opinion, and were barely 
adverted to, if noticed at all, in the columns of the public press. 
In short, the influence of these taxes was to entirely and rapidly 
revolutionize great branches of domestic industry, and in some 
instances to utterly destroy them. Thus, for example, the 
manufacture of burning-fluid entirely ceased, inasmuch as the 
rise in the price of alcohol from 40 cents to $4 and upwards per 
gallon, together with the cessation of the supply of turpentine 
from North Carolina, — then a State in rebellion, — rapidly con- 
verted it from the cheapest to the dearest of all illuminating 
agents. Here, also, very curiously, the public did not experi- 
ence any great inconvenience by reason of this change ; for by 
one of those happy and unexpected occurrences, almost in the 
nature of accidents, which have so often characterized the his- 
tory of the United States, and which some are pleased to regard 
as " special providences," it so happened that the discovery of 
vast and natural supplies of petroleum in Pennsylvania, and the 
practical application of its distillates for illuminating purposes, 
was almost coincident in point of time with the compulsory dis- 
use of burning-fluid ; while the fact that the new material pos- 
sessed great advantages in point of cheapness and effect over 
the old caused the change in popular use to be effected volun- 
tarily and with great rapidity.' As a further illustration of the 

'The first company organized to supply petroleum in the United States was 
in 1854; but it was not until 1 861-2 that the product began to constitute an im- 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. l6l 

compensations which invariably attend the losses immediately 
contingent upon industrial progress, and through the disuse of 
old products, methods, and machinery, it may be stated that, al- 
tho the manufacture of burning-fluid ceased, the business of col- 
lecting, preparing, and exporting petroleum rapidly became one 
of the most important in the country ; while the demand at 
home and abroad for the lamps and their appurtenances devised 
and adapted in the United States for the use of the distillates 
of petroleum was alone sufficient to employ the entire manu' 
facturing capacity of all the glass-works of the country for a 
term equivalent to two entire years. 

Druggists and pharmaceutists in the United States estimat- 
ed the reduction in the use of alcohol in their general business, 
consequent upon its increased cost from taxation, at from one 
third to one half. The popular hair preparations into which 
alcohol entered largely as a constituent vanished from the mar- 
ket ; and manufacturers of patent medicines and cosmetics gen- 
erally abandoned their old preparations and adopted new ones. 
The manufacturer of horse-medicines, who used 50,000 gallons 
of spirits in 1863, wofully testified in 1865 that his business 
was destroyed. Varnish-makers, who, Avhen alcohol could be 
purchased at from 50 to 60 cents per gallon, used it in large 
quantities, were of necessity compelled to entirely or in a great 
degree abandon its use when the price rose to $4 per gallon and 
upward ; and yet special investigation showed that the quantity 
of varnish manufactured was not correspondingly reduced ; in- 
asmuch as the manufacturers at once substituted other and 
cheaper solvents for their gums, especially the naphthas or light 
distillates of petroleum which were then opportunely seeking 
uses and a market. Within a comparatively few years, also, 
the continued high price of alcohol has led the manufacturers of 
quinine to substitute the distillates of petroleum as a solvent 
for the alkaloids in the cinchona barks; and with such success 
that it is doubtful whether the old processes would be again 

portant article of commerce; and it was some considerable time later before its 
distillates were made sufficiently cheap and good to induce anything like general 
use. The average price of burning-fluid from 1856 to 1861 was from 45 to 65 
cents per gallon. The average price of refined petroleum in 1863 was 51 cents ; 
and the domestic consumption about 500,000 barrels. 



T 62 PR A C TIC A L E CONOMICS. 

adopted, even if alcohol could again be afforded at its fornricr 
prices. The manufacturers of hats, who had before used a 
composition of gum-shellac dissolved in alcohol almost exclu- 
sively for stiffening the hat "bodies" or "foundations," and 
were thus large consumers of alcohol, were compelled to aban- 
don its use, and for a time were subjected to no little incon- 
venience. But even here substitutes were soon found ; and in 
addition the use of cloth as a material for hats, in the place of 
felt and silk plush, was largely introduced and became popular. 
The manufacture of vinegar from whiskey, by reason of the 
great advance in the price of distilled spirits, was also in a large 
degree broken up ; and this in turn had the effect to destroy a 
large export business of this article, as well as to increase the 
market-price of pickles to the extent of from one third to one 
half ; and also to seriously affect the manufacture and cost of 
white-lead, and occasion extensive importations of this article 
from other countries. 

The business of fortifying cider for movement or export to 
the Pacific coast and to the tropics, before referred to, as well 
as the manufacture of imitation wines and of cheap perfumery, 
was likewise very seriously interfered with or destroyed, as was 
also the business of manufacturing the fluid extracts of the me- 
dicinal principles of plants ; and it was represented to the Reve- 
nue Commission by members of the American Pharmaceutical 
Association that there was a marked tendency throughout the 
country on the part of physicians and others to abandon the 
use of alcoholic extracts and fall back upon the old custom of 
employing crude drugs, decoctions, and syrups as substitutes; 
and further, that there was an attempt to keep down the price 
to the consumer of many officinal preparations which absolutely 
required the use of alcohol, by putting them up at less than 
their proper officinal strength; thus inflicting a sanitary injury 
upon the whole community. Finally, in all branches of the in- 
dustrial arts, where the continued use of distilled spirits was in- 
dispensable, and no cheaper substitute could be found, the ut- 
most economy in its use was everywhere practised. 

Another curious incident connected with this history was 
that the curators of the leading museums of the country — ana- 
tomical or natural history — attached to institutions of learning, 



OUR EXPERIEiYCE IN TAXING DISTILIED SPIRITS. 163 

memorialized Congress to the effect that, owing to the high 
price of alcohol, they could not afford to make good the waste 
of this substance (by evaporation and leakage) as employed by 
them for scientific purposes ; and that in consequence many im- 
portant collections were becoming greatly impaired in value, and 
the progress of scientific discovery and research greatly impeded. 
And Congress, recognizing the desirability of giving relief in re- 
spect to this matter, empowered the Secretary of the Treasury 
to grant permits to incorporated American institutions of learn- 
ing to withdraw spirits from bond in specified quantities for 
scientific purposes without payment thereon of the internal- 
revenue taxes. 

It seems desirable to state here that the facts as above de- 
tailed, as well as some others to be presented hereafter, were 
the results of the investigations of a Commission authorized by 
Congress in the winter of 1865 for the purpose of inquiring into 
the condition and sources of the national revenue, and the best 
methods of raising revenue for the Federal Government by 
taxation, with full power to summon witnesses and take testi- 
mony ; and that of this Commission the writer was the chairman. 
It will be interesting also at this point to diverge somewhat 
from the thread of this history and consider what information 
is available concerning the present and past consumption of dis- 
tilled spirits in the United States for drinking purposes; and 
also to some extent the experience of other countries in respect 
to the same matter. 

Previous to the imposition of internal taxes by the Federal 
Government in 1862, raw or common whiskey was retailed 
freely throughout the country at from seven to fifteen cents per 
quart, or from twenty-five to fifty cents per gallon. At these 
low prices, it was within the ability of every laborer to indulge 
freely, and this ability was largely taken advantage of, especially 
at the close of a week or at the periodical settlement of wages. 
It was also a very general custom in many parts of the country 
for agriculturists to buy whiskey by the barrel, for the use of 
their farming help, and to use it freely as a beverage during 
the season of harvesting. In short, previous to i860 a man 
could undoubtedly get drunk in the United States with a less 
expenditure of money than in any part of the civilized world. 



164 PRACTICAL ECONOMICS. 

But it may well be doubted whether, with these increased facili- 
ties, drunkenness increased in the United States in any greater 
ratio, or more rapidily, than in other countries, where the facili- 
ties for obtaining intoxicating liquors were notably less. On 
the contrary, the obtainable evidence is all the other way. 
Thus at the time of the formation of the constitution, or more 
precisely in 1790, the domestic production and consumption of 
distilled spirits in the United States, as before stated, was about 
6,000,000 of gallons per annum ; which, with the then population 
of 3,929,000, would be in the ratio of about one and a half gal- 
lons per capita. As there were at that time in the country no 
industrial establishments or processes requiring an extensive 
employment of alcohol, it is probable that nearly the whole 
domestic production of this article was then used for drinking 
purposes; a conclusion which finds support in the circumstance 
that at the time referred to, and for many years thereafter, al- 
most every county, and indeed almost every town, had its little 
distillery of spirits from fruits or grain ; the market for the pro- 
ducts of which, in the absence of facilities for cheap transporta- 
tion, must of necessity have been largely local. At the time of 
the whiskey insurrection in 1794, the number of distilleries in 
Pennsylvania alone was reported at 5000. Furthermore, at this 
time everybody drank, socially and in public, privately and at 
home ; men and women, young and old, the clergymen and 
their parishioners, farmers and their laborers. The last half- 
century has, however, through the agitation of the temperance 
question, the general progress of civilization and refinement, and 
the extensive introduction and use of the malt liquors, not only 
worked a change in the social habits of Americans, — a change 
little understood by the present generation, — but has also un- 
questionably largely decreased the average consumption of dis- 
tilled spirits in the country. From 1790 to 1840 the Census 
returns in regard to production are entitled to but little respect ; 
but the whole weight of evidence is to the effect that the num- 
ber of distilleries and their products steadily increased during 
this period, and fully kept pace with the population. In 1840 
the Census returned the annual domestic product of distilled 
liquors at from 40,000,000 to 50,000,000 gallons. The popula- 
tion at that time was 17,069,000; while in 1880, with a popula- 



OUR EXPERIEI^CE IN TAXING DISTILLED SPIRITS. 165 

tion of 50,155,000, the Internal Revenue Bureau was only able 
to take cognizance for assessment and tax-collection of an an- 
nual production of 62,132,000 gallons of proof-spirits, or 9,000,- 
000 gallons less than in 1870, when the population was 12,000,- 
000 smaller. (But this notable increase in 1870, as compared 
with 1880, and a larger population, is undoubtedly referable to a 
greatly increased consumption of spirits for industrial purposes, 
consequent upon a reduction in price and taxation of near fifty 
per cent.) For the year 1883, with an aggregate population of 
approximately 56,000,000, the number of gallons of proof- 
spirits of all kinds on which the internal-revenue tax was paid 
was returned at 76,762,063 ; but a considerable part of this pro- 
duct undoubtedly represented spirits which paid the tax and 
were taken out of bond by necessity, through the expiration of 
the permissible bonded period, and not by reason of any in- 
creased coincident demand on the part of the public for con- 
sumption. For the year 1883 the quantity of spirits produced 
and deposited in the distillery warehouses was 74,013,303 gal- 
lons, as compared with a similar production and deposit for the 
year 1882 of 105,853,161, And the extent to which production 
had exceeded any legitimate demand for domestic consumption 
is indicated by the circumstance that the taxable product re- 
maining in the bonded warehouses on the 30th of June, 1883, 
after all demands for domestic consumption had been supplied, 
amounted to the large aggregate of 80,499,993 gallons. That 
the Federal authorities do not succeed in collecting the tax on 
all the distilled spirits annually produced in the United States 
is absolutely certain ; but making a large allowance for evasions, 
and supposing the present annual consumption for all purposes 
to aggregate as high as even eighty millions of proof-gallons, it fol- 
lows that while the population of the country has increased nearly 
three-fold, the amount of spirits distilled for domestic consump- 
tion in the same period, under influence of increased price through 
taxation and other agencies, has probably not more than doubled. 
The evidence, therefore, is conclusive of a diminished consump- 
tion, comparing 1840 with the results of 1880 and 1883. But this 
is not all. The use of alcohol in the arts and manufactures has 
enormously increased since 1840. Whole trades in which it is 
largely used have since come into existence ; and altho the 



1 66 PRACTICAL ECONOMICS. 

amount now so consumed is absolutely and comparatively less 
than in i860, when distilled spirits were untaxed, yet the quan- 
tity so used for industrial purposes is still large, and every gal- 
lon so applied reduces the proportion which can be used for 
stimulants. If we assume the present annual consumption of 
domestic distilled spirits in the United States to be about 
70,000,000 gallons ; and about twelve per cent, or 8,400,000 
gallons, of this amount be used for industrial or scientific pur- 
poses, or is lost by leakage and other casualties,' then the 
use of domestic spirits for drink in this country must be at pres- 
ent at the rate of about i.io gallons per capita annually for the 
entire population. To this must also be added the consump- 
tion of foreign or imported spirits — the amount of which exclu- 
sive of wines is not, however, very considerable, less than a million 
and a half of proof-gallons having been imported during the 
fiscal year 1882-3. But adding this amount to the consump- 
tion of domestic distilled spirits before assumed, the total con- 
sumption of spirits — wine, cider, and fermented liquors excepted 
— by the population of the United States, would therefore appear 
to be at present at the rate of about 1.14 gallons per capita. 
During the same year the importation of wines was returned at 
6,187,520 gallons in casks and 195,957 dozen bottles. The con- 
sumption of champagnes and other sparkling wines of foreign 
production would seem to be on the increase in the United 
States; the value of the importations for 1883 being re- 

' The amount of leakage allowed during the fiscal year 18S3 by the Govern- 
ment, on domestic distilled spirits withdrawn from warehouse, was 2,291,013 gal- 
lons, in addition to 184,770 gallons lost by casualty, theft, etc. During the same 
year 28,725 gallons of alcohol were withdrawn from warehouse free of tax for 
the use of colleges and institutions of learning, and 22,359 also for the use of the 
United States. 

In 1882 the Internal Revenue Bureau estimated the amount of alcohol 
annually used in the arts and manufactures in the United States to be equal to 
4,269.978 proof-gallons. This estimate was not, however, founded on returns from 
all the collection districts in the country, and on its face Avas based on little other 
than absurd guesses; country districts of Tennessee, for example, being assigned 
a consumption of from 13,000 to 19,000 gallons, while the annual consumption 
of the 22d District of Pennsylvania, which comprises the city of Pittsburg, was 
put down at only 260 gallons, with the subjoined opinion that this quantity would 
not be likely to be increased if the tax on distilled spirits were to be entirely 
removed. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 6/ 



turned at $4,603,722, as compared with a similar valuation of 
$3,028,309 in 1882 and of $2,883,668 in 1881. 

In Great Britain, where, owing to a rigid enforcement of 
their excise laws, the domestic production and consumption of 
distilled spirits is more accurately known than in any other coun- 
try except, possibly, Russia, the amount of revenue collected 
from the direct tax on this article for the year ending March, 
1883, Avas ;^i4,2i 1,490, or $71,057,450; indicating an annual 
consumption (exclusive of spirits allowed to be used for indus- 
trial purposes after having been made unfit for drinking pur- 
poses by mixing with naphtha or wood-spirit) of 28,422,980 im- 
perial gallons. As compared with the preceding year, 1881-2, 
there was a decrease in consumption of 294,270 gallons in 
England, and of 46,254 in Scotland ; while in Ireland, notwith- 
standing an estimated decrease of population, there was an in- 
creased consumption of 245,667 gallons. 

The consumption per capita in Great Britain at different 
periods of the various beverages which are there made subject to 
taxation is shown in the following table derived from the " Re- 
port of the [British] Commissioners of Inland Revenue" for 
1882-3. 



British spirits, gallons per head . 

Duty increased in i860. 
Foreign and colonial spirits, gallons per head. . 

Duty reduced in 1S60. 
Foreign wines, gallons per head 

Duty reduced in i860. 

Beer, barrels per head 

Tea, pounds per head 

Duty reduced from 2s. 2.ld. to bd. per pound. 

Coffee, pounds per head 

Cocoa, pounds per head 



1852. 


1862. 


1872. 


188 


.916 


.644 


.844 


.i 


.IS7 


• 177 


.285 




.262 


.335 


• 530 




.608 

2.140 


.661 

2.694 


.S85 
4.014 


4-< 


1.274 

.12.3 


1. 108 
■ 134 


•994 

.247 


. 



236 

409 

766 
679 

906 
339 



It appears, therefore, from the above table, that the increase 
of duty on British spirits has been followed by decreased con- 
sumption, while in the case of foreign spirits and wines, and 
tea, a diminution of duty has been followed by a large increase 
of consumption, tea being the most notable example ; and also 
that the present per-capita consumption of strong spirituous 
liquors, domestic and foreign, in Great Britain and the United 
States— 1.04 and 1.14 gallons respectively— is not materially 



1 68 PRACTICAL ECONOMICS. 

different. It must, however, be borne in mind, in consid- 
ering this subject, that malt liquors are used in the place oi 
spirits to a much greater extent in Great Britain than in the 
United States. Thus for the year 1880 the British consump- 
tion of beer is stated by Mr. William Hoyle, an English special- 
ist on this subject, to have amounted to 905,088,978 gallons, 
costing ;^67,88i,678. The tables of the "Financial Reform 
Almanac" for 1884 give the per-capita consumption of beer in 
Great Britain as 27.8 gallons in 1881 and 27.6 in 1882. For 
the year 1882 the of^cial estimate (see table above given) of 
the domestic consumption of malt liquors was .']66 of a barrel 
per capita. In the United States, on the other hand, where the 
manufacture and sale of malt liquors is also made subject to a 
tax, and is so brought under the supervision of the Federal 
Government, the number of barrels of such liquors returned as 
manufactured during the fiscal year 1882-3 was I7>757i886; 
which quantity in turn, reckoning 31 gallons to the barrel, 
would represent 550,494,000 gallons. Adding 1,500,000 gallons to 
represent the excess of imports over exports of malt liquors, 
the consumption of such liquors by the people of the United 
States for the year 1883 would, therefore, appear to have been 
at the rate of nine and seven tenths (9.68) gallons per capita, 
as compared with a per-capita consumption in Great Britain 
for the same period of 27.6 gallons. If allowance be now made, 
as there should be, for the quantity of spirit contained in this 
excess of fermented liquors produced and consumed in Great 
Britain over and above the amount of similar liquors consumed 
in the United States, then the per-capita estimate of the con- 
sumption of spirits in the former country would have to be fixed 
at a somewhat greater figure than the ratio of 1.04 above given. 
From the above facts and experiences the following dedirc- 
cions of general interest are warranted. First, that the cc;»i- 
sumption of distilled spirits and fermented liquors in Great 
Britain is not increasing in proportion to the increase of popula- 
tion, but is absolutely decreasing. Thus, with taxation remain- 
ing unchanged, the British revenue from duties on imported 
spirits has declined from ;^6,i4i,336 in 1876 to ^5,331,561 in 
1879, ^"*^ t° ^^4065,383 in 1883, or at an average rate of about 
$1,250,000 per annum. In the case of the excise the decline 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 69 

has been somewhat smaller, but nevertheless most significant ; 
namely, from ;^ 15, 154,327 in 1876 to ^14,211,490 in 1883, or at 
an average of $670,000 per annum. For the year 1883 the 
British revenue from beer was also less by ^269,000 ($1,445,000) 
than had been anticipated. Commenting on these results, the 
British Commissioners of the Inland Revenue in their report for 
1883 say: 

" The decrease in the consumption [of spirits] in England and Scotland 
appears comparatively small, but it becomes more significant of altered 
habits when considered with the natural increase which must have taken 
place in the population. There cannot be any doubt that in some locali^ 
ties the spread of temperance principles has already caused a marked di- 
minution in the consumption of intoxicating liquors, and the tendency is 
still increasing ; .... the past year having been, apparently, one of un- 
usual progress in this direction." 

The decrease in the revenue from beer for the year 1883 the 
Commissioners attribute to some extent to the influence of tem- 
perance societies, but especially to the failure of the hop-crops 
throughout the world, which increased the price of hops from an 
average of £6 los. to above ^^22 per hundred-weight. 

Commenting on this falling-off of the imperial revenues from 
wine and spirit taxes, the Chancellor of the Exchequer, in his 
budget statement for 1883, stated that in comparison with the 
receipts from these sources in 1874-5, and allowing for the in- 
crease of population, the product for 1883 ought to have 
amounted to ^24,840,000 ; whereas it was, with the same rates, 
but ^19,840,000; or in other words, he showed that the domes- 
tic consumption of wine and spirits during the period under 
consideration " had fallen off to an amount represented by five 
millions of duty, and, including the beer duties, the three had 
fallen off to an amount represented by 3^. on the income-tax." 
During the same period the population of the kingdom had in- 
creased not less than 4,000,000. 

The notable decrease in the consumption of foreign wines in 
Great Britain since 1874-5, indicated by the decrease in the re- 
ceipts of revenue from the duties imposed on their import 
(;^i,789'^55 in 1874, as compared with ;^i,293,833 in 1883, repre- 
senting in quantity a change from about 18,500,000 to 14,000,000 



170 PRACTICAL ECONOMICS. 

gallons), finds concurrent support in the testimony of social ex- 
perience. " Something of this falling-off," says All the Year 
Round, " is due, perhaps, to a distaste for wine as a beverage, 
brought about by a general deterioration in quality, and by the 
enormous adulteration of which wine is the subject. But there 
is also a change in the social habits of the wealthier classes. In- 
stead of the popping of champagne-corks we have the fizzing of 
mineral waters. The hospitable suppers where wine and wit 
flowed freely are things of the past ; the balls of other days, 
when the fair dancers refreshed themselves so freely with spark- 
ling wines, are succeeded by parties, where nothing is provided 
beyond tea and lemonade." 

Commenting also on these reductions in the receipts of the 
British national revenues from the taxes on liquors, the Lon- 
don Standard says : 

" The change indicated by them in the social habits of our population 
is enormous. Some of these were mentioned by Mr. Caine in his address 
to the Central Temperance Association. Thus, to take a single instance, 
commercial travellers who, only fifteen years ago, were called upon to pay 
at hotels for a bottle of wine whether they drank it or not — being charged 
in consideration of this usage only a shilling for their dinner — are charged 
now three shillings for that meal, but are not expected to order anything 
for ' the good of the house.' It is to be feared that in most great commer- 
cial cities, furnished as they are with their wine ' shades ' and subterranean 
drinking-saloons, there is still a good deal too much tippling at odd 
hours. But, on the whole, no one can shut his eyes to the fact that there 
exists a strong and growing public opinion against drunkenness even 
among those who are less rigidly abstemious than might be desirable. For 
the first time in the history of this country, intoxication, irrespective of the 
social level on which it may be seen, carries with it a lasting stigma. The 
whole tendency of the day is opposed to excessive drinking. The tem- 
perance movement is not only making a great number of teetotallers, but 
influencing those "who are not abstainers greatly to decrease the amount 
they take. At the great majority of dinner-parties the quantity of wine 
taken after the ladies have left the room is very small ; and if Thackeray 
were to rewrite Chapter X. in his ' Book of Snobs,' he would represent 
Captain Rag and Ensign Famish as ordering a 'lemon-squash ' in the 
small hours, rather than a sixth glass of whiskey-punch." 

But the points of interest in connection with this matter are 
not yet exhausted. It has long been the aim of the Chancellors 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. I/I 

of the British Exchequer to obtain the largest possible revenue 
from spirituous liquors, to the assumed concurrent relief of all 
other forms of business and commodities from taxation ; and the 
proportion of the annual revenues of the United Kingdom de- 
rived of late years from these sources is probably not recog- 
nized by the public, or even by economists and financiers 
generally. For the period 1859 ^o i8^5 the proportion of the 
tax revenue of Great Britain derived from spirituous liquors was 
in the ratio of 37!^ per cent to 62 from all other sources. From 
1869 to 1873 the ratio was 46 from the former to 53 from the 
latter; while from 1874-5 to 1879-80, 51 per cent of all British 
taxes, except the income-tax, was levied on liquors, and 49 
per cent on all other sources. But since 1880 there has been 
a reaction, and in 1882 the proportion had changed to 47 from 
liquors and 53 from other sources. The British Exchequer is 
therefore confronted with a new problem, namely, What provi- 
sion is to be made if this decrease of revenue from a decrease in 
the consumption of spirituous liquors by the British public is 
to continue? Such a continued decrease being not improbable, 
there are but two courses open, new taxes or diminished ex- 
penditures ; and the latter, in view of the Eastern complications 
of Great Britain, does not seem to be possible. But for the 
present it is not a little curious to find that Ireland comes to the 
rescue, and by increasing her consumption of whiskey to the ex- 
tent, even with a diminished population, of 245,667 gallons in 
the single year 1883, helps relieve from financial difficulties the 
treasury of her Saxon oppressor. 

Commenting on this reduction in the consumption of spirits 
in Great Britain, its causes and effects on the social condition of 
the mass of the British people, Mr. Gladstone in his budget 
speech in April, 1882, said: 

" If this diminution of consumption is going on, and if a main cause of 
this diminution is the foundation of those valuable and useful institutions 
known all over the country — I believe, in all the great towns or in most of 
them, and even in many country places — as coffee and cocoa houses, we 
ought to see a large increase of revenue, at least, from other sources. But 
that increase we do not find. That is a curious fact. I am not going to 
include tea, because tea, after all, is not much used in these public places. 
The revenue derived in 1867-8 jointly— I will not give all the details— from 



1/2 PRACTICAL ECONOMICS. 

chicory, cocoa, and coffee, was _;^523,ooo. The revenue derived from the 
same sources in 1874-5 had fallen to ;r3io,ooo; but then, in the first place, 
the movement adverse to alcoholic liquors had not then commenced, and. 
in the second place, a very large reduction had been made on the coffee 
duty, which in 1867 yielded ^390,000; but it was reduced in 1872 from 3^. 
to \\d. per pound, and in 1874 it only yielded ^207,000. But while this 
great movement adverse to alcohol, which has been so eminently favorable 
to both coffee and chicory, has been at work since 1874-5, it has not pro- 
duced the slightest rally in the revenue from coffee, but, on the contrary, 
during the last seven years there has been a further diminution on coffee. 
In 1874 the coffee duty was ^207,000; in 1881 it was only ;^ 189,000; and' 
altho the chicory duty had been slightly increased, it only increased 
by _£8ooo, and did not make up the whole difference. The cocoa duty 
had increased somewhat, from ^40,000 to _£46,ooo; but the joint yield of 
these three articles, which in 1874 was ;/^3io,ooo, was only ^306,000 in 1881. 
When we turn to tea tlie case is very different. There it is not in the tea 
houses, but the domestic use of tea that is advancing at such a rate that 
there you have a powerful champion able to encounter alcoholic drink in 
a fair field and to throw it in fair fight. The revenue on tea, which in 
1867 was ^3,350,000, had risen in 1874 to ^^3,87 5,000 and in 1881 to 
^4,200,000. The increase of the population during that period of 14 years 
was 4,900,000. But there was no corresponding augmentation in the reve- 
nue from coffee and chicory. One other circumstance in connection with 
this state of facts and with the great diminution in alcoholic drinks I have 
ventured to lay before the committee; for certainly I do not hesitate to 
say that I think we can trace the operation of this diminution in the use 
of alcoholic drinks precisely where we should wish to trace it — that is, in the 
augmented savings of the people. I will show what are these savings as far 
as they come under the cognizance of the government, and I hope that 
forms a very small portion of those savings, but at the same time for the 
purposes of comparison it is perfectly effectual. I look first to the old 
savings banks. In 1846 their deposits were 3 if millions. In 1861 they 
had risen to \\\ millions; in 1867, owing to the competition of the Post- 
Office savings banks, which paid a considerably lower rate of interest, they 
had fallen to 361- millions. Since that time they have been advancing, not 
rapidly, but steadily. In 1874 they were 41^ millions; in 1881 they were 
;^44, 175,000, showing an annual increment of about ^350,000. The Post- 
Office savings banks, as the committee are aware, were founded in 1861. 
They have advanced on the whole very steadily, Even the most unfavor- 
able state of circumstances among the laboring classes has never done 
more than reduce, not inconsiderably, but still not vitally, not the amount 
of the deposits, but the yearly increment of the deposits. The ordinary 
increment of the deposits in the Post-Office savings banks has been from 
/ 1, 600,000 to ^1,800,000. In the first decade the lowest amount for any 
year is ;{^i.533,ooo, and the highest ;{Ji, 926,000. The lowest year in the 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 73 

second decade was 1879, when there was great distress and want of emplojr. 
ment ; but even in that year the deposits were /i, 600, 000. In the highest 
of the prosperity years, 1872, the savings were 22,293,000, and for 1881-2, 
with a great diminution of means on the part of the laboring population, 
they have risen to ^3,189,000. I think that shows that, whatever other 
effects this diminution of the duty on spirits is producing, it is clearly as- 
sociated with the gradual extension of more saving habits among the 
people." 

Another point of interest established by the records of re- 
cent experience is a very remarkable increase in the production 
and consumption of malt Hquors in the United States. In 1863 
the estimated production of all malt liquors was estimated at 
about 2,000,000 barrels of 31 gallons each, or 60,000,000 gallons. 
In 1880 the production actually assessed for revenue by the 
Federal Government was 13,347,110 barrels; 1881, 14,311,028; 
and in 1883, 17,757,892, or 550,494,000 gallons, reckoning 31 gal- 
lons to the barrel. The increase of beer production and con- 
sumption in the United States since 1863 has been, therefore, 
in a far greater proportion than the increase in population. 
How far it has served to diminish the vice of drunkenness in its 
most vicious form by supplanting the consumption of the 
stronger spirituous liquors for the purposes of drink and 
stimulants has not yet been shown by any statistics, and it may 
be difificult to do so with any high degree of accuracy; but such 
a supposition is, to say the least, extremely probable, and is 
claimed by the representative brewers of the United States to 
be almost in the nature of a self-evident fact. The President of 
the American Brewers' Association, in his address before the 
annual meeting in 1883, commented upon it as follows: 

" A more remarkable revolution in the habits and customs of a people, 
nor a longer stride in the path of temperance by the substitution of a 
healthful and invigorating drink, nutritive and but slightly stimulant, for 
the fiery spirits whose consumption is so apt to lead to excess, is not to be 
found in the history of the world." 

Attention should here also be called to a most significant and 
notable circumstance in connection with this matter ; and that is 
that while the number of persons who take out licenses under the 
internal revenue to retail liquors in the different States and Ter- 



174 PRACTICAL ECONOMICS. 

ritories is continually increasing — 163,523 in 1879-80; 170,640 in 
1880-81 ; 168,770 in 1881-82 ; and 187,871 in 1883 — the number 
of those who take out similar liquor licenses in those States where 
prohibition has been engrafted on the constitution or placed 
upon the statute-book appears to increase in an equal or greater 
proportion. Thus, in the State of Maine the number of such 
licenses in 1880 was 757; in 1881,820; in 1882,918; and in 
1883, 1054. In Kansas there were 1132 in 1881 ; 1460 in 1882; 
and 1898 in 1883. In New Hampshire there were 747 in 1880 
and 1066 in 1883. Iowa, 3965 in 1880; 4104 in 1882; and 5001 
in 1883. Vermont, on the other hand, shows a decrease from 
508 in 1880 to 454 in 1883. As illicit dealing in malt liquors, by 
reason of their bulkiness, is more difificult than in the case of 
spirits, it would seem as if one effect of prohibition of all retail 
sales of all liquors must be to discriminate against beer and in 
favor of whiskey drinking ; but record of licenses for the sale of 
malt liquors in the prohibition States does not show a decrease, 
but rather a marked increase, in the number granted. 

The aggregate exportation of American beer, altho increasing, 
is as yet very insignificant in comparison with the domestic pro- 
duction ; the export in 1883 having been 220,792 gallons in 
casks and 215,938 dozen bottles, as compared with 61,661 gal- 
lons in casks and 3633 dozen bottles in 1875. Most of the beer 
exported finds its market in Mexico, Central America, the West 
Indies, Colombia, Venezuela, Brazil, Japan, and the Sandwich 
Islands. 

The statistics of the Dominion of Canada indicate a com- 
parative consumption of distilled spirits largely in excess of that 
in the United States, approximating two gallons per capita ; a 
conclusion which perhaps"ought not to be regarded as surprising, 
when consideration is given to the proportion of the population 
of the Dominion engaged in a rigorous climate in rough, out- 
of-door employments, as fishing and lumbering, in which the 
consumption of spirits is regarded almost in the light of a 
necessity. 

Recently published French statistics indicate a marked in- 
crease in the consumption of alcoholic liquors in France within the 
last fifty years, and that the present annual rate is about three 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 75 

fourths of a gallon (3 litres =3. 15 quarts') per capita. The 
present annual per-capita consumption of wine in France is es- 
timated at about 30 gallons (120 litres). The departments of 
France which consume the most spirituous liquors are those 
which produce no wines ; and in the departments where wine 
is largely produced cases of "delirium tremens" are acknowl- 
edsred to be rare. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS.* 

II. 

WITH a view of making as complete as possible the curi- 
ous record of the experience of the United States in 
taxing distilled spirits, especially in that department of the sub- 
ject which relates to the influence of this tax on other industries, 
it is proposed to here turn back and ask attention to an example 
of no little economic interest and importance which inadvert- 
ently was not noticed in its proper connection in the preceding 
article, and which illustrates in a remarkable manner the subtle, 
diffusive, and often remote and unexpected influence of a tax, 
especially when the same is imposed on the processes rather 
than the final results of industry. 

Before the tax was levied upon distilled spirits in 1862, a 
large (and probably the largest) proportion of the vinegar used 
in the United States Vv^as made from this product, rather than, 
as was popularly supposed, from the juice of apples and grapes; 
the process of manufacture being substantially to add yeast to 
alcohol (low proof-spirits) largely diluted with water, and allow 
the mixture to trickle slowly through a cask filled with shavings 
of beech-wood. In this way the alcoholic liquor is caused to 
present an immensely extended surface to the action of the air, 
when oxidation takes place so rapidly that very frequently by 
the time the liquor has reached the bottom of the cask it no 
longer contains any alcohol, but is entirely converted into vine- 
gar. Experience has also shown that vinegar thus manufactured 
and with care is always purer and a better preservative of ani- 
mal and vegetable food than vinegar manufactured from the 
juices of fruits, inasmuch as the latter always contain putresci- 

' Princeton Review. 
176 



OUR EXPERIENCE IN TAXING DISTIILED SPIRITS. 1 77 

ble constituents which are rarely fully eliminated by the pro- 
cess of fermentation ; and further, that when the use of distilled 
spirits at their first cost of production is permissible for the 
preparation of vinegar, the product can be sold at a much 
cheaper rate than any other competing article : and the desira- 
bility of cheapness and purity in the supply of this commodity 
at once becomes evident, when it is remembered that the largest 
consumption of vinegar in every community is for the pickling 
(preservation) of meats, fish, and vegetables. All this business 
the war-taxation at once and almost completely broke up. On 
the other hand, the manufacture of cider — which was not 
specially taxed — received a great stimulus. New orchards were 
set out, new nurseries were called into existence, additional 
cider-mills were demanded in every apple-section of the country, 
and thousands of dollars were invested in this industry where 
but a small sum had formerly sufficed. The old fashioned press 
also gave place to improved and expensive machinery, and ex- 
pensive buildings were erected for conducting the business on a 
most extensive scale. According to a statement submitted to 
Congress in 1882 by the '* Cider-Vinegar Makers' Association," 
the number of persons engaged in cider and cider-vinegar 
making in the United States at that time was between ten 
and twelve thousand, and the amount of capital invested as 
aggregating into millions. As the amount of available cider 
and wine produced in the most favorable fruit-years is, however, 
never sufficient to supply the demand of the country for vinegar, 
other and cheaper materials for its manufacture were sought for 
and found, but always at the sacrifice of the purity and health- 
fulness of the resulting product. Great hopes were for a time 
entertained that a fermented syrup made from glucose, or 
starch-sugar, would answer, and this material soon came into 
extensive use ; but the vinegar made from it was found to 
soon putrefy, and its use, after occasioning great losses to pick- 
lers and the community, was abandoned. Unscrupulous manu- 
facturers also made use of mineral acids for the manufacture of 
factitious vinegar ; and as some evidence of the extent to which 
such fabrications came into general use, it may be stated that 
in 1877 the Board of Health of the District of Columbia con- 
demned five car-loads of so-called vinegar sent to Washington 



178 PRACTICAL ECONOMICS. 

from Chicago, analysis showing that the same was little other 
than dilute sulphuric acid ; the board further reporting that the 
sample analyzed formed part of an invoice of a thousand barrels 
which had been brought to that city for sale and consumption 
as vinegar. 

Under such circumstances, Congress in 1879 made it lawful 
for manufacturers of vinegar to separate by a so-called vaporiz- 
ing process the alcoholic element of an ordinary distiller's 
" mash," and condense the same in water in such a way as to 
form a weak mixture, suitable for making vinegar, and yet not 
salable as spirits. But the moment this was done, fresh indus- 
trial antagonisms arose. Vinegar manufactured from distilled 
spirits again made its appearance on the market, and in such 
quantities and at such prices that the cider-vinegar makers 
claimed it would be no longer possible for them to continue 
their business. The latter accordingly, as was to have been ex- 
pected, speedily organized themselves into a National Protective 
Cider-Makers' Association, and demanded of Congress, through 
petitions and deputations, that the permission granted to vapor- 
ize alcohol and use it in the manner described for the manu- 
facture of vinegar should be at once repealed, alleging that 
the consequence of refusal would be to destroy many millions 
of dollars of capital which the original tax-law had caused 
to be invested, and (with less of truth) that the fruit-pro- 
duction of the country would be checked, and the manufac- 
ture and sale of deleterious compounds to serve as vinegar be 
encouraged. Very curiously, also, the distillers actively co-ope- 
rated as allies of the cider-vinegar makers in asking for a repeal 
of the new law, alleging a fear that it would encourage illicit 
distillation and consequent frauds on the revenue. That there 
were some reasons for such apprehensions could not well be 
doubted ; but the real motive influencing the distillers un- 
doubtedly was, the fear of losing a limited market for their 
products which had come to them through a revival to some 
extent of the manufacture of spirit-vinegar, in consequence of 
the reduction of the tax on proof-spirits in 1868 from $2 per 
proof-gallon to 50 cents, with subsequent changes to 70 and 90 
cents in 1872 and 1875 respectively. And the antagonisms thus 
inaugurated still exist, and continue to occupy the attention 



OUR EXPERIENCE IN TAXING D I ST I LIED SPIRITS. I /g 

of the committees of Congress in a greater or less degree at 
almost every session ; the whole history affording a most strik- 
ing illustration of the unnatural, unpatriotic, and false view that 
has come to be almost universally taken under the leading free 
representative government of the earth of the great function of 
taxation. The distiller, for example, in the case in question, 
asking to have returned to him what he regards as an alienated 
right, namely, to levy contribution on every one who desires to 
use alcohol in any shape ; the cider-maker, that the tax may be 
so fixed as will prevent competition and thereby enable him to 
exact a larger profit on the sale of his product ; and, finally, the 
spirit-vinegar maker claiming that as he alone occupies a humani- 
tarian standpoint, because his product alone is cheap and always 
healthful, therefore that the law should be especially framed to 
promote and encourage his business ; — each and all speaking, as 
is proper, for their own interests ; each and all, as is not proper, 
ever ready to promote their interests by fictitious pleas and 
averments ; while no one (or but rarely) appears on behalf of 
the consumers, who are the great mass of the people, in whose 
interests, it is popularly claimed, all laws are enacted. Further- 
more, none of the disastrous consequences which it was confi- 
dently predicted would ensue if Congress failed to withdraw from 
the spirit-vinegar makers the permission to use vaporized spirits 
have apparently occurred as the result of such failure. The regu- 
lar business of producing distilled spirits goes on as usual. 
Farmers have not ceased to plant and care for their orchards ; 
cider continues to be manufactured in increasing quantities 
when the seasons are propitious ; while the general public have 
abundant opportunities to supply themselves with whatever 
vinegar they may desire at lower prices than have prevailed 
since the breaking out of the war in i860. The Commissioner 
of Internal Revenue alone seems warranted in complaining that 
through the use of the vaporizing process the facilities for illicit 
distillation are increased, and probably taken advantage of, to a 
considerable extent. Finally, if to any it may seem that this 
history has been stated in greater detail than is expedient,, 
it may be replied that no more important contributions can, in 
the opinion of the writer, be made to economic science than 
just such records of practical experience ; for it is mainly 



l8o PRACTICAL ECONOMICS. 

through the force and teaching of such examples that the 
masses can be induced to acknowledge the truth and make the 
application of abstract principles. 

One of the topics to which the attention of the Revenue 
Commission of 1865 was given, was the influence of the greatly 
increased cost of distilled spirits in the United States, through 
the war-taxation, on their demand for drinking purposes; and 
the testimony of a large number of persons from all sections of 
the loyal States — manufacturers and dealers in liquors, United 
States revenue officials and others — was taken in reference to 
this matter. The opinions expressed were almost unanimously 
to the effect that no change in consumption was noted by re- 
tailers until after the tax was raised above 60- cents per gal- 
lon ; but that when the tax was increased to $2 the reduction 
for a time in consumption, especially in the thinly settled sec- 
tions of the country, was very noticeable. With the increase of 
taxes on whiskey there was also an immediate and very marked 
increase in the consumption of beer, the price of which was not 
enhanced by taxation to a corresponding extent with that of 
spirits. Thus in 1864, with an internal-revenue tax of $1 per 
barrel, the assessment was paid on an equivalent of 2,223,000 
barrels; in 1865 on 3,657,000; in 1866 on 5,115,000; in 1867 on 
3,819,000; while in 1883 the number, as before stated, was 17,- 
757,892 barrels. 

On the other hand, the testimony of leading retail and pack- 
age dealers in liquors in many of the large towns and cities was 
generally to the effect that their business iii the aggregate was 
not diminished by the high rates of taxes imposed on spirits ; 
but at the same time all admitted that the demand for the so- 
called " foreign" or " imported " liquors (upon which the tariff 
rates had been raised to a greater extent than the taxes on do- 
mestic spirits) largely diminished ; and also that this loss was 
fully made good by an increased sale of American whiskey. In 
fact, the great increase at this time in the price of foreign liquors 
greatly promoted the sale and use of whiskey in the northern 
and eastern sections of the country, and seems to have nation- 
alized this liquor as a beverage, and also the term " Bourbon," 
which then for the first time was, in common parlance (as it ever 
since has. been), generally given to every variety of American 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. l8l 

whiskey. One prominent retail liquor-dealer of New York tes- 
tified before the Commission in 1865 that where during the pre- 
ceding two years he had lost a sale of four gallons of ^' for- 
eign" (?) brandy, he had in the same time gained a sale of 
twelve gallons of American whiskey. There was also a general 
agreement among the witnesses that one noticeable effect of the 
greatly increased cost of spirits through taxation was an in- 
crease of adulteration of the cheap liquors that were retailed, 
thus debasing the quality of the article that was consumed by 
the habitually intemperate or the physically exhausted among 
the poor. One practical illustration in proof of this (contained 
in a memorial presented to Congress by the American Wine and 
Spirit Society) was, that in i860, when gin was selling, duty paid, 
in New York, at 65 cents per gallon, the retailer charged 6 
cents a glass; and that the retail price continued the same when 
the wholesale price had subsequently advanced to $3.25 per 
gallon. 

Previous to the war and the taxes, the cheap liquors bought 
by the masses in the United States for stimulant or intoxication 
were not much adulterated, because there was nothing much 
cheaper than the crude proof-spirit itself (costing from 14 to 23 
cents per gallon wholesale) which could be used as a material for 
adulteration. At the same time, nothing could be much more 
deleterious than the American raw spirits (whiskeys) from which 
the so-called fusel-oil (amylic alcohol), which is the invariable 
accompaniment of its distillation, has not been removed by re- 
distillation or by oxidation through standing and atmospheric 
exposure.' 

Some reliable testimony was also taken illustrative of the 
specific consumption of distilled spirits in the United States be- 
fore the war. Thus, according to the opinion of those best 
conversant with the trade, the quantity of proof spirits re- 
quired to meet the demands of New York City and its immedi- 

> While fusel-oil, in itself, is so deleterious that the inhalation of its vapor, 
even in minute quantity, is very dangerous, there can be no doubt that it is 
almost completely removed from spirits through what is technically called "age- 
ing," or atmospheric oxidation and moderately high temperatures. Under such 
circumstances the fusel-oil appears to be naturally converted into innoxious eth- 
ers, which give to wines and liquors their delicate "bouquet," or flavor, which is 
so much prized and is so agreeable. 



1 82 PRACTICAL ECONOMICS. 

ate vicinity in 1862 was from 800 to 1000 barrels daily, or from 
twelve to fifteen millions of gallons per annum. Of this amount 
one half was set down as directly consumed for drink; while the 
balance, having been converted into alcohol, pure spirits, imita- 
tion liquors, medicinal preparations and the like, found a market 
elsewhere. According to the testimony of the then Superinten- 
dent of Police, the number of places where spirituous liquors 
were sold at retail in New York City in 1862 was upwards of 
8000 ; and that the quantity sold over the bars of some of 
the largest hotels, restaurants, and drinking-saloons was equiva- 
lent in each case to a barrel of fifty gallons daily. 

The results of investigations made some years ago in Eng- 
land, and communicated in a paper read before the Statistical 
Society by the Rev. Dawson Burns in 1875,' were to the effect, 
that increased taxation upon spirits in Great Britain, and a conse- 
quent increase in their price, had always resulted in restricted 
consumption ; that the lowering of the rate had, on the other 
hand, stimulated consumption ; and that seasons of manufactur- 
ing and commercial prosperity and development virtually oper- 
ated as a reduction of the rate and of the price. Mr. Burns, in 
the paper referred to, also brings out this further interesting 
fact ; namely, that in 1861 Mr. Gladstone, with a view of induc- 
ing a popular consumption of light wines, and in accordance 
with the popular theory that light wines, if cheap, would readily 
enter into consumption, and by helping to drive out the stronger 
liquors would assist in the work of promoting popular sobriety, 
largely reduced the duties on imported wines, i.e., from 5s. Qf^d. 
to IS. per gallon on wines containing less than 26 per cent of 
proof-spirits, and 50 per cent on wines more highly alcoholic 
but not exceeding 42 per cent of proof-spirits. The result 
was a refutation, in a degree, of the popular theory. The 
importation and use of imported wines, as was expected, largely 
increased ; and altho a taste for the French clarets was par- 
tially excited among the British public, the consumption of the 
stronger wines of Spain and Portugal — the sherries and the 

1 " The Consumption of Intoxicating Liquors at various periods as affected 
by the rates of duty imposed upon them," by the Rev. Dawson Burns, M.A., 
Metropolitan Superintendent of the United Kingdom Alliance. {Journal of the 
Statistical Society of Loudon, vol. xxxviii. 1S75.) 



OUR EXPERIENCE IiV TAXING DISTILLED SPIRITS. 1 83 

ports — was stimulated in a much greater degree. In the de- 
bate, however, which followed the reading of this paper, the 
drift of opinion expressed was, that the conclusion of Mr. 
Burns, that high duties as a rule reduced the consumption of 
spirits in England, was not sustained ; and it was pointed out 
by Dr. Farr and others that the consumption of intoxicating 
liquors in Great Britain was affected far more by the prosperity 
of the country and the rates of wages than by the duties which 
had at different times been imposed upon them. And the late 
Mr. Dudley Baxter, especially, whose knowledge and judgment 
of economic matters are entitled to great respect, maintained 
that, as regards the upper and middle classes of Great Britain, 
Mr. Gladstone's legislation in respect to wines had been of most 
decided advantage to the cause of temperance ; and that this, 
together with the spread and cheapening, by his measures, of 
tea and coffee, had been one of the most effectual agencies that 
had been adopted in the country for many years for the further- 
ance of the object which the advocates of temperance had at 
heart. But be this as it may, the whole evidence from the ex- 
perience of the United States is, that if the great and rapid in- 
crease in the price of distilled spirits, after the year 1863, through 
Federal taxation, did for a time and to some extent operate to 
diminish their popular consumption, the effect was but tempo- 
rary. And such a result, when the habits and character of the 
people of the United States are taken into consideration, 
ought not to have been unexpected ; and it is to be observed, 
furthermore, that it accords entirely with the experience of 
Great Britain, as accepted by her leading economists and ex- 
pressed in the debate above noticed. For such is the degree of 
material abundance in the United States, and so easy has it been 
for the masses of its people to obtain what they want in the 
nature of food-supplies, that they are notoriously extravagant 
and not given to economy in the use of all such materials ; ^ 

^ The following example in the way of confirmatory evidence on this point, 
which has come to the knowledge of the writer while the present article was in 
the course of preparation, is so interesting that he cannot forbear submitting it 
to the reader. 

During the past year, the price of sugars, all over the world, owing to an in- 
crease of production has been lower than at any previous time in the history of 
commerce; and, in accordance with a well-recognized economic law or axiom, 



1 84 PRACTICAL ECONOMICS. 

and a rise of price operates less in restricting consumption than 
in almost any other country. And as illustrative of this matter, 
it is interesting to note the difference in the methods by which 
liquors are retailed in the United States and England respec- 
tively. Thus in the former, when a drink of distilled spirits is 
called for at a public bar, the bottle or decanter is set before the 
customer and he helps himself ; in the latter, on the contrary, 
every quantity of spirits retailed is measured by the seller, and 
accurately proportioned to the price to be received by him. This 
custom prevails universally in Great Britain — in the leading hotels 
and club-houses as well as with the smallest and lowest retailers ; 
and hence the original signification of the term " dram-shop," i.e., 
a place where liquor is sold by the fluid drachm or other measure, 
but which in the United States has become so perverted in 
meaning as to now signify a place where one can drink without 
any exact measure, or have as much strong liquor for a common 
price as the average consumer would ordinarily desire for one 
act of drinking. Besides, as remarked by Mr. Burns in his paper 
above referred to, industrial prosperity and full employment of 
the masses virtually operate as a reduction of the tax and the 
price of spirits ; and such employment and industrial activity 
existed in the United States in a high degree from the latter 
years of the war down to the era of business and financial dis- 

consumption has also noticeably increased. In the United States this increase is 
estimated as high as from lO to 15 per cent; and, very curiously, has manifested 
itself in a greater proportionate demand for the lower grades of refined white 
sugars, rather than, as might naturally have been expected, for the best qualities of 
refined yellow sugars, which are cheaper. This circumstance attracting the at- 
tention of one of the great refiners in the United States, he sought an explana- 
tion of it from one of his most intelligent workmen, and in answer received the 
following reply: " There is no difficulty, sir, in explaining it. I give my wife, 
for instance, every Monday morning fifty cents to buy sugar for the family for a 
week, as I have aUvays done; and she buys the same quantity as before: but 
the same money now gives us the same quantity of white sugar that it once did 
of the yellow." Or in other words, the wife, being the judge of the interests and 
desires of the family, preferred to take her share of the advantage resulting from 
the fall in the price of this essential article of household consumption in an in- 
crease in quality (which, by the way, was more apparent to the eye than the taste), 
rather than in the form of a larger quantity, for the same price, of the grade which 
had before been satisfactory; or than the same quantity and quality as before, and 
applied the resulting saving to the purchase of something additional or to an 
increase of the family reserve in the savings-bank. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 85 

turbance and paralysis in 1873. During all this period, accord- 
ingly, the aggregate drinking consumption of distilled and fer- 
mented liquors in the United States went on steadily increasing, 
or at least keeping pace with the increase of population. With 
the advent of bad times in this latter year, some diminution in 
the popular use of these commodities might naturally have 
been expected; and during the years 1873 and '74 there seems 
to have been some decrease, or at least no increase ; the decrease 
manifesting itself rather in the consumption of fermented liquors 
than of distilled spirits : the receipts of internal revenue from 
the former, from the tax of %\ per barrel, declining from $8,910,- 
823 in 1873 to $8,880,829 in 1874, and $8,743,744 in 1876; while 
the population continued to increase. But subsequent to 1875-6, 
and especially on the recurrence of national prosperity in 1878-9, 
the aggregate consumption of spirits and beer in the United 
States rapidly increased ; the internal-revenue receipts from dis- 
tilled spirits — tax remaining the same — increasing from $56,- 
426,000 in 1875-6 to $69,893,000 in 1882-3; and of fermented 
liquors from $9,571,000 in 1875-6 to $16,153,920 in 1882-3: 
which increments, it will be noted, are in much greater ratio 
than any concurrent increase in population. 

It is interesting to here also note the changes which have 
taken place during the period under consideration in the impor- 
tation of champagne, a form of spirituous liquor almost exclu- 
sively consumed by the more wealthy portion of our population. 
In 1870 the importation was returned at 2,106,000 quarts and 
906,788 pints. In 1874, the year following the commencement 
of the long commercial and industrial depression, the importa- 
tion was 1,615,000 quarts, a decrease of 491,000; and 1,688,000 
pints, an increase of 782,000. In 1878 the importation was 
837,000 quarts, a decrease, as compared with 1874, of 778,000; 
and 1,185,000 pints, a decrease of 500,000. In 1880, national 
prosperity having returned, the importation was 1,35 1,000 quarts, 
an increase, as compared with 1878, of 514,000; and 1,784,000 
pints, an increase of 599,000. For the fiscal year 1883 the im- 
portations of champagnes were returned at 2,506,092 quarts and 
3,927,372 pints or less ; a very large increase over the importa- 
tions of any former years. 

Finally, considering all the evidence available on this matter 



1 86 PRACTICAL ECONOMICS. 

of the production and consumption of distilled and fermented 
liquors in the United States and other countries, one cannot 
resist the impression of the small apparent effect which specific 
agencies — legislative, societary, and personal — produce in restrict. 
ing their consumption as stimulants or for intoxicating purposes. 
Excepting, possibly, the recent experience of Great Britain and 
certain exceptional periods, the aggregate everywhere goes on 
increasing: no matter whether the prices be high or low, in bad 
times as well as in good : in the latter because the masses have 
the means to indulge their appetites, and in the. for 712 er because 
they think there is a need of stimulants to counteract the ten- 
dency of the times to mental depression. The most remarkable 
illustration to the contrary is probably to be found in the results 
of the labors of Father Mathew in behalf of temperance in Ire- 
land in the years 1838-40. Under his influence, the consump- 
tion of distilled spirits in Ireland, as indicated by the revenue 
returns, fell off more than 40 per cent, and did not materially 
increase for many years thereafter. Now, however, Vaepcr capita 
consumption of Ireland, with a greatly reduced population, is 
about the same as it was prior to the temperance agitation in 
1838; thus indicating that the influence of Father Mathew, tho 
resulting in great immediate good, has not been permanent. It 
is also to be noted that the reduction in the consumption of 
distilled spirits in Ireland which followed Father Mathew's 
work was accompanied by a notably increased consumption of 
tea and malt liquors. On the other hand, and as matter of 
encouragement to any friends of temperance who may feel a 
sense of discouragement at the results of these investiga- 
tions, the fact before noticed should be recalled, that while 
the production and consumption of distilled spirits in the 
United States continually increase and appear very large in 
the aggregate, the comparative consumption is undoubtedly 
much less than it was forty years ago, — unquestionably very 
much less than it was at the commencement of the present 
century, — and does not at present tend to increase, but rather 
to decrease ; and that what is true of the United States appears 
to be also true of Great Britain, All available evidence, further- 
more, is to the effect that with the increase of civilization, of 
facilities for intercommunication, and general consuming power, 
7 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 8/ 

the increased consumption of distilled spirits — taking a term of 
years for comparison — has not been by any means as great as 
has happened in respect to other commodities of common con- 
sumption. Thus, while, according to Mr. Leone Levi, the Brit- 
ish economist, the consumption per head of the British people 
from 1866 to 1877 of bacon and hams increased 277 per cent, 
of wheat 94 per cent, of sugar 57 per cent, and of tea 32 per 
cent, the consumption of spirits increased only 21 per cent. A 
similar conclusion is reached by comparing the estimated per 
capita consumption of certain articles of daily consumption by 
the population of the city of London in 1843 ^i^d 1865. Thus, 
in respect to sugar, the increase during this period was from 16.5 
lbs. to 41. 1 lbs. ; of tea, from 1.4 lbs. to 3.2 lbs. ; of cocoa, from 
0.09 lb. to I.I lbs. ; and of spirits, from 0.87 gallon to only 0.89 
gallon. Evidence to the same effect, even more striking and 
confirmatory, was also presented by Robert Giffen, Esq., Presi- 
dent of the Statistical Society of London, in his inaugural ad- 
dress delivered in November, 1883; from which appeared that 
the proportion of various imported and excisable commodi- 
ties retained for home consumption had increased per head of 
the total population of Great Britain during the period from 
1840 to 1881 as follows: bacon and hams, from o.oi lb. to 
13.93 lbs.; butter, 1.05 to 6.36; raw sugar, 15.20 to 58.92; rice, 
0.90 to 16.32; tobacco, 0.86 to 1.41 : while the /^r capita in- 
crease in the consumption of spirits had been from 0.97 gallon 
to only 1.08 gallons. 

The statistics of German consumption are also reported to 
lead to similar conclusions. 

It has been a somewhat popular opinion that the great in- 
crease in the price of alcoholic liquors, through taxation, since 
1863 has induced and increased the consumption of opium 
and other drugs in the United States, as substitutes for spirits. 
Of this there is no positive proof. There has been a marked 
increase in the importations of crude opium into the United 
States, and in the importation and domestic manufacture of 
morphia, the principal derivative of opium, since i860, but not 
greater than what would seem to be warranted by the increase 
of population. In i860 the importations of crude opium were 
returned at 119,525 lbs., and in 1866 at 180,852 lbs.; and these 



1 88 PRACTICAL ECONOMICS. 

facts would indicate some basis for the belief of an abnormal 
use of this drug during the years of the war. In 1869 the 
importation fell off to 90,997 lbs., but increased in 1875 to 
188,238 lbs., in 1880 to 243,211 lbs., and fell off in 1883 to 
229,012 lbs. Supposing the entire opium importation into 
the United States for the past year (1883) to be exclusively 
used for domestic consumption, certainly this amount is not 
large for 53,000,000 people. But all of this import was not 
so used ; inasmuch as there is some export of opium and its 
derivatives from the United States to the West Indies and 
Central and South America; in all which countries the com- 
parative consumption of opium is much greater, and the com- 
parative consumption of spirits much less, than in the United 
States : an illustration of what is now accepted as a cosmic 
law, that the use of intoxicating liquors is to a certain extent 
dependent on climate. Medical experts have very generally 
come to regard the danger in respect to opium consumption 
in the United States to be at present almost wholly confined 
to the use of morphia ; there being an undoubted tendency 
among persons affected with nervous ailments, — more especially 
women, — when they feel depressed from various causes, and in 
need of some stimulant, to resort to this drug, which, altho 
most costly, does not affect the breath like alcohol and can be 
easily carried and concealed about the person. 

On the other hand, the importation of opium specially prepared 
for smoking purposes, which did not exist in 1865, has in latter 
years increased enormously; rising from 12,554 lbs. in 1871 to 
77,196 lbs. in 1880, and 298,153 lbs. in 1883; paying in the latter 
year a customs revenue of nearly two millions of dollars. The 
preparation of opium for smoking finds its way into the country 
mainly through the port of San Francisco, and its consumption 
has hitherto been supposed to be almost wholly restricted to 
Chinese residents ; but the circumstance that the increase of 
import has been of late in a ratio so far in excess of any ratio 
of increase in Chinese immigration suggests a probability that 
the vice of opium-smoking is finding favor and adoption with 
the native American. 

Attempts have been made from time to time to estimate the 
annual cost to consumers in the United States and other coun- 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 89 

tries of distilled and fermented liquors used for the purpose of 
drink. At the best, these estimates, no matter how carefully 
prepared, can but be regarded as approximately accurate, as 
the necessary data for forming an opinion cannot be obtained 
with exactness. The following statements and inferences re- 
specting the cost of such consumption in the United States 
may, however, be of some value and interest. 

Assuming the present (1883) consumption of distilled spirits 
for drinking purposes at about 60,000,000 proof-gallons per 
annum,' the original or first cost of this quantity at 25 cents 
per gallon would be only $15,000,000. (The average price of 
proof-spirits in Cincinnati, exclusive of the tax, for the year 
1882 was 24.9 cents ; for 1883, 23.8 cents.) Adding the internal- 
revenue tax of 90 cents per gallon ($54,000,000) and all the addi- 
tional taxes which the Federal Government imposes on the 
whole business of producing and vending distilled spirits, i.e. 
licenses, etc. ($6,410,764), and the first cost would become 
further augmented to $75,410,764. (The census return of the 
value of the entire product of distilled liquors in the country 
for 1880 was $41,063,000.) The returned value of the imports 
of spirits, of imitations thereof, and of champagne for 1883 was 
$6,906,900, on which the duties collected were $5,593,869; mak- 
ing the aggregate first cost of such importations $12,500,769, 
and the total first cost of the entire distilled spirit and imported 
champagne consumption of the United States for the fiscal year 
of 1883 $87,911,533: of which large sum, $66,004,633 accrues 
to the internal revenue. It will thus be seen that the Govern- 
ment is the largest partner, and has by far the largest interest, 
in this business. 

The next question of interest and importance is. To what ex- 
tent is this aggregate of first market-price or cost, and of the ac- 
companying taxation, increased in the process of distribution ? 

^ The number of gallons of proof-spirits on which the internal-revenue tax 
was paid for the year 18S3 was 76,762,063, of which 75.508,785 gallons were dis- 
tilled from grain, molasses, etc., and 1,253,278 gallons from fruit. Of this 
ag'.-rec'ate, 7 561. 171 gallons were withdrawn from warehouse under the form of 
alcohol; which would represent in turn about 14,400,000 gallons of proof-spirits, 
and indicate a larger consumption of spirits for industrial and pharmaceutical 
purposes than was assumed on page 166 of the first article of this series. 



igo 



PRACTICAL ECONOMICS. 



The drift of opinion on the part of those who have discussed this 
subject in Great Britain appears to be that it is about doubled. 
If we assume this to be the case in the United States, then the 
ultimate cost to the consumer of the distilled-spirit and cham- 
pagne consumption in this country from the year 1883 would 
be $175,823,066. 

It may here also be mentioned that the value of the still 
wines imported mto the United States during the fiscal year 1883 
(duties included) was returned at $8,827,000. 

The present (1884) domestic production and consumption of 
fermented liquors — ale, lager-beer, etc. — is probably about 18,500,- 
000 barrels, of an average capacity of 31 gallons each ; or an ag- 
gregate of 573,500,000 gallons. At an assumed valuation in the 
hands of the manufacturer at $6 per barrel, the resulting aggregate 
would be $111,000,000. (The returned census valuation of the 
malt-liquor product of the United States for 1880 was $101,088,- 
000.) The internal-revenue tax of $1 per barrel ($18,500,000), and 
an allowance of an equal sum to cover expenses and profits of 
distribution to the retailers, would further increase this original 
cost as above assumed to $148,000,000. If sold (retailed) to the 
consumer at double this sum, the final aggregate figures would 
be $296,000,000. For the year 1883 the value of the importa- 
tions of ale, beer, and porter — duties included — was returned at 
$1,657,178, which to the ultimate consumer may be assumed to 
represent an expenditure of at least $3,000,000. 

We have then, on the basis of the above figures and estimates, 
a present direct annual expenditure on the part of consumers in 
the United States of $175,823,000 for distilled spirits (domes- 
tic and imported) and of champagne, but exclusive of all still 
wines ; and of $299,000,000 for fermented liquors of domestic 
and foreign production ; or a total annual aggregate of $474,823,- 
000. This result is much less than the estimates that have 
been heretofore made, and which have obtained much credence 
on the part of the public ; and they are also less in comparison, 
as will be directly shown, than the estimates of the cost of simi- 
lar consumption generally accepted as correct for Great Britain. 
The main element of uncertainty pertaining to all these calcula- 
tions is in respect to the extent to which the original or first 
cost of the various liquors is enhanced in price on their way to 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 19I 

the ultimate consumers ; and here, in the absence of much defi- 
nite evidence, there is an opportunity for great latitude of 
opinion. It is obvious that the price paid for drink varies 
greatly according to the circumstances under which it is ob- 
tained ; the man buying each glass from a public retailer neces- 
sarily paying much more per gallon than the one who takes it 
from a cask or bottle at home ; ' and to accurately ascertain how 
final consumption is apportioned in these respects in a nation 
of 55,000,000 is clearly an impossibility. It will also be noted 
that the above aggregate does not include any estimate of 
the cost of the annual consumption of domestic or foreign 
wines other than champagne. 

But assuming $474,000,000 as the minimum annual cost to 
the consumers of distilled and fermented liquors in the United 
States at the present time, it will be interesting to compare 
this amount with the returned value, according to the census of 
1880, of the annual product of certain other leading commodities. 
Thus, the returned valuation of cotton manufacturers for 1880 
was $2 10,000,000; of woollen goods, $160,000,000; of boots and 
shoes, $196,000,000; of agricultural implements, $68,000,000; 
of men and women's clothing, $241,000,000; of iron and steel, 
$296,000,000 ; and of lumber planed and sawed, $270,000,000. 
The amount of expenditures for public schools in the whole 
country, including building and all other expenditures, for 1880, 
was also returned at $79,339,814. 

This same subject has also attracted much attention of late 
years in Great Britain ; and the results of its investigation have 
been presented in several elaborate papers to the Statistical 
and other economic and scientific societies. The general conclu- 

' Popular estimates of the cost of distilled and fermented liquors to consumers 
which have obtained extensive circulation and acceptance fix the retail price of 
the former at from $3.78 to $6 per gallon, and of the latter at from $16 to $20 
per barrel, or from 50 to 67 cents per gallon. 

One ingenious writer has given the following estimate of the number of 
drinks represented by the present annual consumption of distilled spirits in the 
United States: " Each gallon contains fifty average drinks; which multiplied by 
the total number of gallons consumed for drinking purposes (assumed at 60,000,- 
000 for 1883) would give 3,000,000,000 drinks; which would be at the rate of over 
54 drinks per annum for each man, woman, and child of the present population, 
estimated at 55,000,000." 



192 



PRACTICAL ECONOMICS. 



sions which seem to be accepted as approximately accurate are : 
that the amount paid for the production and distribution of 
alcohol in its several forms of spirits, beer, and wines in Great 
Britain for the year 1880 was from i^ 1 20,000,000 ($600,000,000) 
to ^130,000,000 ($650,000,000), or a sum nearly double the 
whole land-rental of the United Kingdom. The actual cost of 
the production of the raw materials used in the aggregate manu- 
facture of these several products has been estimated at about 
;^25,ooo,ooo, or $125,000,000, and the original cost of the 
home products and imports (including the expense of manu- 
facturing, but not that of retailing and distribution) at about 
;^42,ooo,ooo ($210,000,000). According to an estimate presented 
to the Statistical Society of London, April, 1882, by Mr. Ste- 
phen Bourne, the number of persons employed in producing 
the raw materials out of which the alcoholic products annually 
consumed in Great Britain are in turn manufactured must ap- 
proximate 300,000 in number ; and that nearly 600,000 people 
(workers) additional are employed in the subsequent and con- 
tingent manufacturing and dispensing processes; or a total of 
near 900,000 persons "whose occupation it is to provide the 
liquor consumed in the land." Mr. William Hoyle, an Eng- 
lish investigator, who for many years has made this subject a 
specialty for discussion and investigation, and who publishes an 
annual report and estimates, in a recent communication to the 
London Times fixes the expenditure of the British people for 
the year 1883 on intoxicating liquors at $627,386,505, a decrease 
of $3,870,420 as compared with 1882. Accepting these con- 
clusions respecting the annual direct expenditure of the British 
people for alcoholic liquors, the estimates above given of the 
present annual expenditure of the United States for like pur- 
poses would seem by comparison, as before stated, to be too 
small. But, on the other hand, it should be borne in mind that 
the present wholesale market-price of crude spirits in the United 
States, inclusive of the tax, is less than half that charged in 
Great Britain ; and that the estimates of expenditure for the 
United States as above given do not include the cost of the 
consumption of domestic wines : so that, if allowance is made for 
these differences, the estimates for the two countries, as above 
given, will very closely approximate. But again, it is to be re- 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 193 

membered that the population of the United States is at pres- 
ent almost one third larger than that of Great Britain. In the 
face of such antagonism of results, there would seem therefore 
but one thing that could be said in explanation ; and that is, 
that the latitude of opinion existing, and which, in the absence 
of authentic data, is fully permissible, of the extent to which 
the wholesale cost of distilled and fermented liquors is in- 
creased in the process of retail distribution, warrants, without 
any imputation of inaccuracy, a very great discrepancy of con- 
clusion as to the aggregate final cost of spirit consumption. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS.' 

III. 

E come next to a consideration of the most interesting 
and novel phase of this history; namely, the financial 
results and moral influences which have follovi^ed the attempt 
of the United States to obtain a large revenue through the im- 
position of high taxes on distilled spirits. 

The first tax imposed by Congress after the outbreak of the 
war, namely, under the act of July i, 1862, was 20 cents per 
proof-gallon, or at the rate of fully 100 per cent on the then 
cost of the article taxed. The revenue derived from the same 
for the fiscal year ending July I, 1863, exclusive of the revenue 
derived from licenses for the manufacture, rectification, and sale 
of spirits,' was $3,229,941, indicating a production of 16,149,950 
gallons, as compared with a production returned under the 
census of i860, three years previous, of 90,000,000 gallons. 

The tax of 20 cents continued in force until March 7, 1864, 
when the rate was advanced to 60 cents per gallon. The rev- 

^Princeion Revie-w. 

"^ In addition to the tax directly imposed on the distilled spirit, the United 
States from the first imposed a number of other collateral taxes, i.e., license- 
fees, permits, etc., on the business of producing, refining, and vending of 
spirits, all of which, altho assessed and collected independently, are included 
under a general return of aggregate revenue from distilled spirits. Thus the 
total revenue returned as collected in any one year is always considerably 
greater than the receipts from the direct tax on the spirit itself. These annual 
aggregates since the first imposition of the tax have been as follows: 1863, 
$5,176,520; 1864, $30329,149; 1S65, $18,731,422; 1866, $33,268,171; 1867, 
$33,542,695; 1868, $18,655,630; 1S69, $45,071,230; 1870, $55,606,094; 1871, $46,. 
281,848; 1872, $49,475,516; 1873, $52,099,371; 1874, $49,444-089; 1875, $52,. 
081,991; 1876, $56,426,000; 1877,157.469,000; 1878, $50420,815; 1879, $52, 570,- 
284; 1880, $61,185,508; 1881, $67,153,974; 1882, $69,873,408; 1883, $74,368,775. 

194 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 95 

enue derived under these two rates for the fiscal year ending 
June 30, 1864, was $28,431,798, and the number of gallons 
returned as having been assessed was 85,295,391. 

On the 1st of July, 1864, the tax on distilled spirits was 
further raised to $1.50 per proof-gallon, and by the same act it 
was further provided that the tax on and after February i, 1865, 
should be $2 per gallon. When Congress reassembled, however, 
on the succeeding December, the time when the $2 rate was 
made to take effect was changed from the ist of February, 1865, 
to the preceding ist of January. The revenue which was col- 
lected under these two rates for the fiscal year ending June 30, 
1865, was only $15,995,000. For the fiscal year ending June 30, 
1866, — the first full year under the $2 tax, — the receipts were 
$29,198,578 (exclusive of $283,409 derived from spirits distilled 
from fruits), the assessment being on 14,599,000 gallons. 

With these curious figures before us, let us next inquire 
somewhat more in detail into the course of events of which they 
are the exponents. From the very commencement of the war, 
until its issues became certain, and indeed for a considerable 
period thereafter, the attention of the Government was so en- 
grossed with current military events, foreign relations, the 
operations of the Treasury in respect to the most complicated 
and gigantic system of finance and taxation that the world 
has ever known, and later with the problems of the recon- 
struction of the Union, that the efforts made to prevent, detect, 
and punish frauds in respect to the revenues were almost abso- 
lutely of no account. Indeed it may be further alleged with 
truth that the spirit and working of the revenue statutes were 
to a very great degree in the direction of the encouragement of 
fraud and speculation. And while there was also during all 
these times an immense amount of patriotism on the surface, it 
rarely with the producing and commercial part of the com- 
munity struck in so deep as to prevent them from taking 
prompt advantage of any necessities or neglect of the Govern- 
ment, to benefit their individual and material interests. Thus, 
going back to the rates of taxation on domestic distilled 
spirits, it will be found that, after the imposition of the first 
tax of 20 cents per gallon in July, 1862, the rates were three 
times changed and largely advanced within the short space of 



ig6 PRACTICAL ECONOMICS. 

ten months — namely, March, 1864, from 20 to 60 cents; July, 
1864, from 60 cents to $1.50; and January, 1865, from $1.50 to 
$2 per gallon. There was, moreover, in each case — dating back 
to the imposition of the first tax — ample premonition to all 
interested that the tax would be imposed or largely advanced ; 
and, after the enactment of the first tax, a feeling of almost ab- 
solute certainty, which experience afterwards confirmed, that 
Congress, under the influences to which it was subjected, would 
never make the advance applicable to stocks on hand. The first 
and general result of such legislation was to render the great 
business of distilling in all parts of the country almost altogether 
speculative and extremely irregular. A more special and im- 
mediate result of the first three and succeeding tax enactments 
was to cause an almost entire suspension of distilling, which 
was resumed again with great activity as soon as an advance 
in the rate of tax in each instance became probable. The stock 
of spirits which accumulated in the country under this course 
of procedure was without precedent ; and as Congress, as 
already stated, refused to make the advance in taxation in any 
instance retroactive, it thereby virtually legislated for the 
benefit of the distillers and the speculators rather than for the 
Treasury and the country. 

Under the first tax of 20 cents per gallon, imposed July i, 
1862, there was probably no very great fraud perpetrated. The 
idea of systematically cheating the Government was new ; the 
persons concerned in the business of distilling did not fully 
know how to do it, and there was in addition an entire absence 
of that record and tradition of illicit practices in respect to mat- 
ters of revenue that forms a part of the history and romance of 
almost every government of Europe, and entails an hereditary 
disposition to smuggle under the customs, to evade under the 
excise, and to socially ostracize every official charged with the 
execution of the laws and the detection of offenders. But there 
was nevertheless sufficient whiskey manufactured in anticipation 
of this low tax, or which evaded the tax after its enactment, to 
bring down the legitimate production of the country from 
ninety millions of gallons in i860 to sixteen millions in 1862-3. 

But early in the commencement of the new fiscal year, 
1863-4, when it became evident that the great fiscal necessities 



OUR EXPERIENCE I AT TAXING DISTILLED SPIRITS. 1 97 

of the Government would soon compel an increase of all taxes, 
and that distilled spirits would be one of the first subjects upon 
which the rate would be raised, the situation speedily altered ; 
and with this anticipation all the distilleries of the country 
gradually got into full operation. The advance anticipated was 
made on the 7th of March, 1864, and was from 20 to 60 cents 
per gallon. The Internal Revenue Bureau assessed and col- 
lected the spirit-tax for that year upon 85,295,391 gallons. Of 
this great product — sixty-nine millions of gallons in excess of 
the product of the preceding year — at least seventy million gal 
Ions were manufactured prior to the 7th of March, and were 
released from Government control by the payment of the 
20-cent tax only; and as after the 7th March, 1864, the market- 
price of the greater part of this increased product, which 
had not been allowed to pass into consumption, was advanced 
in accordance with the advance in the tax, — i.e., 40 cents per 
gallon, — it is clear that twenty-five millions of dollars at least 
were thus at once legislated into the pockets of the distillers 
and speculators. 

Again, immediately after the imposition of the 60-cent rate 
in March, 1864, nearly all the distilleries once more suspended 
operation; the country was acknowledged to be overstocked 
with tax-paid Vi^hiskey, and the Government almost ceased to 
collect taxes upon its manufacture. In May, however, the pro- 
ject for a further increase in the rates began to be again 
agitated in Congress ; and as soon as its realization became prob- 
able all the distilleries speedily resumed operations. How great 
at that time was the capacity of the loyal States for production, 
and how actively the distilleries temporarily worked under the 
stimulus of a prospective increase in the tax, may be inferred 
from the circumstance that in the month of June, 1864, the num- 
ber of gallons distilled and on which the Government collected 
the 60-cent tax was 10,468,976, or at the rate of 125,000,000 gal- 
lons per annum ; while the number of distilleries in the country, 
which according to the census of i860 was 1138, or in the ratio 
of 27,540 persons to each distillery, had increased, in 1864 to 
2415, or in the ratio of 17,242 persons to each distillery; and 
how this increase in distilleries further continued will be here- 
after noted. 



ig8 PRACTICAL ECONOMICS. 

On the 1st of July, 1864 (or of the succeeding month), the 
tax was again advanced from 60 cents to $1.50 per gallon ; and 
during that month the entire product of the country of which 
the revenue officials could take cognizance was only 697,099 gal- 
lons. How great a " stock on hand," the result of manufacturing 
under the 20- and 60-cent rates of tax, was carried over the ist 
of July and experienced the advance of 90 cents per gallon in 
market-price in consequence of the advance in the tax from 60 
cents to $1.50, cannot be accurately known ; but sixty millions 
of gallons would certainly be a low estimate ; and on this 
amount the profit that accrued to private interests was at least 
$50,000,000. With the further advance in the tax on the suc- 
ceeding 1st of January to $2, the operations above described 
were again repeated, with all the benefit derived from former 
experience, and with a very large extension of the sphere of 
participants in the resulting profits. What was the resulting 
profit from this last transaction was estimated, by those who 
had opportunities for forming an opinion, at from twenty to 
thirty million dollars. 

In short, all the available evidence indicates that the profits 
realized by distillers, dealers, speculators, through Congressional 
legislation having reference to the taxation of distilled spirits 
from July i, 1862, to January i, 1865, — a period of two and a 
half years, — and exclusive of any gains accruing from evasions 
of taxes, and with every allowance for overestimates, must have 
approximated one hundred million dollars. 

Such, then, is a brief but probably as exact a narration as it 
is possible to now give of what may be regarded as the first of a 
long series of subsequent and successful operations in the United 
States which have had for their object the spoliation of the gen- 
eral public for the benefit of the comparatively few through 
legislative enactments or the abuse of corporate privileges, and 
which was almost unnoticed at the time of its occurrence by 
reason of the far greater importance of other and contempora- 
neous events. The transactions under consideration, neverthe- 
less, mark an^era in the history of the United States almost as 
important as the war itself; for before that time frauds, in this 
country, against the Government, and trafficking in the interests 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 1 99 

of the community, were always comparatively small, and were 
never systematized on a large scale. The moral sense of the 
community previous to that time seems to have been also more 
impressible and less inclined to tolerate and overlook the pros- 
titution of influence and position on the part of men prominent 
in public office or trusts for the sake of private gain. It was, 
moreover, the first occasion when the outside influences — 
subsequently termed the " lobby" — gathered round the halls of 
Congress in notable numbers, and with acknowledged influence 
and organization, for the purpose of influencing legislation in 
behalf of private and selfish interests. It was the opening of 
the flood-gates for an issue of corruption which has since then 
almost seemed to pervade the whole land, and which the press 
and the pulpit have not been able to roll back. Since then, 
also, nothing in this direction has been too audacious to ven- 
ture, and there has been little in the way of attempt which 
the public has not tolerated, condoned, or speedily forgotten, 
more especially if the attempt has been accompanied by 
success. 

One question, however, which naturally suggests itself at this 
point is, " What explanation can be given of the action of Con- 
gress in relation to this whole matter?" " How happened it 
that with the lesson of experience repeatedly before it and made 
a subject of discussion. Congress in successive instances, and 
always, refused to make the advanced rates on distilled spirits, 
enacted solely on account of the public necessity for greater 
revenues, applicable to stocks on hand, the greater part of 
which it was acknowledged had been manufactured solely for 
the purpose of profiting by the great advance in price certain to 
result from the advance in the tax ?" 

In reply it is to be said that it is not easy to satisfactorily 
answer these questions. It is certainly impossible to charge 
wholesale corruption or improper motives against the men in the 
two branches of Congress tvho in the main conrrolled and led the 
fiscal legislation of this period. Thus among those prominent 
in favoring exemption were Senators Fessenden, of Maine, and 
Trumbull, of Illinois — men against whom the voice of scandal 
never was and never could be raised ; while on the other side 
were Mr. John Sherman, of the Senate, and Elihu Washburn, 



200 PRACTICAL ECONOMICS. 

of the House. The arguments brought forward in opposition 
to making the whiskey taxes retroactive were mainly that it was 
contrary to sound policy for the Government, after having 
assessed and collected the taxes on an article of manufacture 
and released it for sale or use, to again reassess the same prop- 
erty before it had been subjected to use ; and also that it would 
be a matter of no little difficulty and expense for the revenue 
officials to find and assess a product of spirits after it had once 
become an article of commerce and passed from the supervision 
and custody of the Government. On the other hand, it was 
urged in reply that it was the custom of the Government, 
Federal and State, to tax the same articles, while awaiting con- 
sumption and use, at successive periods — as stocks on hand, ani- 
mals, and agencies of production and transportation ; and that 
much of the whiskey which it was proposed to subject to the 
surcharge was held in warehouses in quantity (as was afterwards 
proved to be the fact), and so was not difficult of ascertainment 
and assessment. 

In the case of the first two acts of legislation by which the 
tax was originally imposed and then advanced, there was prob- 
ably not much speculation or participation of interest on the 
part of members of Congress and revenue officials. But in the 
case of the last two acts, speculation and participation in the 
results of legislation were very extensive. The answer to a 
question put by the writer, some twelve years subsequent to the 
period of the events related, to a somewhat prominent member 
of Congress during the war, '■'- To what extent his associates 
participated in the speculation contingent upon their legislation 
respecting the whiskey tax ?" substantially was," that his personal 
and certain knowledge of such transactions was very limited, 
but that he inferred, from the interest displayed by members in 
the current market rates and prices of highwines, the participa- 
tion to have been very extensive." A personal interest was con- 
fessed in a hundred barrels, purchased under the 6o-cent tax 
and carried until disposed of under the $2 tax ; and regret was 
also expressed that, inasmuch as the legislation in question was 
inevitable, he had not been bolder and profited more largely by 
his opportunities. From conferences with persons who v/ere 
formerly and at the time officially employed under the internal 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 201 

revenue, and spoke from personal knowledge, the writer also 
feels warranted in asserting that there was not a revenue district 
in the loyal States in which distilled spirits were manufactured 
or largely dealt in at wholesale, in which the officials of the reve- 
nue, collectors, assessors, inspectors, gangers, clerks, and detec- 
tives, were not to a greater or less extent engaged in speculating 
in whiskey, and consequently personally interested in favor of 
Congressional legislation looking to an advancement of the rates ; 
and that the transactions in question were not only no secret, 
but were regarded as perfectly legitimate. And as a single 
illustration of the profits accruing to private parties and in par- 
ticular instances, a case made known to the Revenue Commis- 
sioners may be referred to, in which one firm manufactured or 
received under contract, for a period of several weeks prior to 
the assessment of the $1.50 tax, an average quantity of thirty 
thousand gallons of proof-spirits per day : the major part of 
which was held and sold after the advance in the tax in January, 
1865, to $2 per gallon. 

After the establishment of the $2 rate on the 1st of January, 
1865, there was again a period of inactivity on the part of those 
interested in the manufacture of distilled spirits. The stocks 
on hand, manufactured in anticipation of the advances in rates, 
were very large, and, the markets being oversupplied, there was 
little legitimate inducement for activity on the part of distillers. 
The profits realized, or made prospectively certain, had been, 
moreover, enormous, and no further advance in the rate of tax 
could be anticipated. Under such circumstances there was an 
apparent disposition on the part of manufacturers and specu- 
lators to wait and see what developments in legislation and 
business would follow the now certain termination of the war. 

It was just at this period that the writer was appointed chair- 
man of the " Revenue Commission," created by Congress under 
an act of March 5, 1865, for the purpose of inquiring into the 
best methods " of raising by taxation such revenue as may be 
necessary in order to supply the wants of the Government," and 
also concerning '* the sources from which such revenue should 
be drawn ;" and without any previous adequate preparation, and 
without any fund of experience available for guidance, other 
than what could be personally collected under the large powers 



202 PRACTICAL ECONOMICS. 

for investigation granted to the Commission, he entered upon his 
duties. The task at the outset seemed as hopeless as to attempt 
to tunnel a mountain with nothing but a crowbar; and one of 
the chief sources of embarrassment was to determine, from the 
immense number of points of detail, how and where to begin ; 
for the United States revenue system at this time actually- 
touched directly every art, trade, profession, and occupation of 
the country, and drew from them, and largely by direct taxa- 
tion, in a single year (1865), the enormous sum of $559,000,000. 
After considerable deliberation it was determined to commence 
the investigations with that one article or department of this 
great tax system which furnished the greatest specific revenue, 
which proved to be '' distilled spirits." The theory which he 
entertained at the outset respecting the situation was the com- 
mon and popular one, so far as there was any such, namely, that 
distilled spirits was a product upon which it was expedient to 
impose the heaviest burden of taxation ; that if the annual con- 
sumption of the country averaged ninety million gallons, as it 
probably did before the war, a tax of $2 per gallon would suffice 
to pay all the burden of interest on the immense public debt, and 
provide for its ultimate extinguishment through a sinking fund ; 
and finally, that if the high tax resulted in restricting consump- 
tion, the gain to temperance and morality would far more than 
counterbalance any reduction of revenue. The method of 
investigation adopted was as follows : A typical distillery 
■was first visited, and a study made of its machinery and sys- 
tem of operations, including the assessment and collection 
of taxes ; second, the leading distillers of the country were 
brought to a conference, and their views and wishes obtained, 
and in conjunction a large amount of testimony from rectifiers, 
wholesale and retail dealers, was also taken : third, the leading 
officials of the Internal Revenue Office — assessors, collectors, in- 
spectors, and detectives — were called together at Washington, 
and their opinions and experiences noted. Finally, books were 
consulted : and in this particular the situation in the United 
States was like that of the snakes in Ireland — there were none ; 
while, apart from the British blue-books, the literature of all 
other countries in respect to the taxation of spirits was exceed- 
ingly meagre. The result of a long and careful inquiry, how- 
20 



OUR EXPERIENCE IN TAXING DISTIIIED SPIRITS. 203 

ever, abundantly satisfied the writer that all his preconceived 
ideas on the subject, and which were also very generally the 
ideas of Congress and the great body of the people, were 
entirely erroneous; that under the influence of a high tax and 
a resulting high cost the production and consumption of spirits, 
exclusive of the demand for drink, was greatly restricted ; and 
that under the conditions of a sparse population scattered over a 
vast extent of territory, and a form of government that would 
not admit of the use of a despotic, inquisitorial, and numerous 
police, the attempt to collect a tax of a thousand per cent on 
the first cost of any article was utterly impracticable. In a 
report made to Congress in January, 1866, it was accordingly 
recommended that the $2 tax be abandoned and a tax of 50 
cents per proof-gallon, conjointly with a license system for recti- 
fiers and dealers, be adopted as the rate most likely to be pro- 
ductive of revenue and most efificient for the prevention of illicit 
distillation and other revenue evasions. 

The report, altho attracting much attention by reason of the 
singular experiences of the preceding four years which it de- 
tailed, obtained no favor in respect to its recommendation of 
tax abatement ; only two members of Congress of any promi- 
nence, namely. General Garfield and Hon. W. B. Allison, of 
Iowa, both then members of the House and of its Committee 
of Ways and Means, cordially accepting its conclusions. The 
result was no legislation, and a new chapter of experience ; for 
when it became certain that the opportunity for realizing profits 
from manufacturing in anticipation of an increase in the tax 
had come to an end by the prospective maintenance of rate, 
the opportunity for profit offered by the imperfections of the 
law was at once eagerly embraced and improved. Thus, testi- 
mony subsequently brought to light repeated instances where 
individual distillers manufactured, conveyed to market, and 
fraudulently sold spirits, varying in quantities from 20,000 to 
30,000 gallons and upward, without a suspicion on the part of 
local officials that the business was not in all respects conducted 
legally and honestly. It was sv/orn to before the writer that 
the determination of the strength of spirits, preparatory to 
assessment, was often made by mere physical inspection or 
taste, and that the use of instruments (for which no uniform 



204 PRACTICAL ECONOMICS. 

standard was provided) was regarded as something wholly un- 
necessary. It was also not unfrequently the case that barrels 
were inspected and branded some days in advance of their 
being filled, and their future regulation — filling and removal — 
left entirely with the manufacturer. Distillers and their work- 
men were sometimes constituted inspectors of their own pro- 
duct ; and in one instance an assessor was appointed who did 
not possess sufificient intelligence to understand and correctly 
use either a gauging-rod or an hydrometer. Thus it was at 
the commencement of the period of high taxation ; but subse- 
quently, when the administration of the laws became somewhat 
more intelligent and vigorous, and some degree of concealment 
to the projectors of fraud became necessary, the expedients 
successfully adopted for the evasion of the tax were in the 
highest degree characteristic of the people. One of the most 
fertile of these was made available through a provision of law 
which allowed spirits to be made and stored in bond, or ex- 
ported in bond, without prepayment of the taxes. Thus, for 
example, spirits deposited in bond were, through the connivance 
and corruption of ill-paid officials acting as guardians, secretly 
withdrawn from bond, the barrels filled with water or very weak 
spirits, and subsequently exported. On receipt of a " landing 
certificate," obtained through a consul of an inferior grade at 
some foreign port, the bonds given by the manufacturer for the 
payment of the taxes were cancelled, and the profits derived 
from the sale of the untaxed spirits in the domestic market, at 
the tax-paid rate, were divided among all concerned. Ware- 
houses from which spirits deposited in bond had been fraudu- 
lently withdrawn were also frequently burned, and the bonds 
cancelled on evidence of loss, wholly fraudulent, but so strongly 
supported by perjury as to be difficult of disproof. Large 
losses were also sustained by the Government by the accept- 
ance, as the basis of large transactions, of bonds which sub- 
sequent investigations, contingent on the exposure of more 
open frauds, showed were purposely made and given by persons 
of no responsibility, who in some instances by prearrangement 
agreed to accept the risk of persecution and trial, with an 
almost certainty of non-conviction by a jury, for a stipulated 
compensation or a share in the anticipated fraudulent profits. 



OUR EXPERIENCE IN TAXING DISTIIIED SPIRITS. 20$ 

Congress enacted that in cases where spirits were sold for less 
than $2 per proof-gallon, the purchaser must show that the tax 
on the same had been paid. The immediate response to this 
legislation was a decline in the market price of spirits. For the 
best rectifying houses, alcohol distillers, and druggists, who had 
heretofore maintained themselves by buying their supplies (z. e. 
of illicit product) on the open market, asking no questions, now 
found that they must evade the law to meet competition, or give 
up their business ; and very many chose the latter alternative. 
The methods of evasion adopted were numerous and simple. 
In some instances fictitious bills were given by the sellers at the 
legal valuation; others sold at the legitimate price and then 
made the purchaser a present of other whiskey sufficient to 
reduce the cost of the purchase to the market price. The 
officials, in many cases, aided in the violation of the law. Thus 
the statute forbade the sale of confiscated spirits at less than 
the rate of tax ($2) per gallon ; and if not sold for so much, 
the liquor was to be destroyed ; yet, at different sales by U. S. 
marshals, it was bid off at $2 and the purchaser charged with 
less than the actual number of gallons, in order to reduce the 
cost to the market price of illicit product. Then this law having 
proved a failure the Internal Revenue Department issued a 
stringent order that a Government receipt for the tax should 
accompany all sales in quantity ; but immediately tax receipts 
for tax-paid spirits became abundant, and sold as freely in the 
market as the whiskey itself. Congress also attempted to check 
an important class of frauds through the removal of spirits 
from distilleries in barrels without payment of the tax, with the 
connivance of assessors and storekeepers, by the appointment 
of an inspector for each distillery, and requiring him to be 
paid by the distiller. But this made him in fact a creature of 
the distiller ; and the inspector joining hands with the officials 
he was appointed to watch, the frauds soon became more 
gigantic than ever. Secret pipes, connected with the ''worm 
tanks" or receiving cisterns, conveyed the spirits underground to 
rectifying establishments, often separated by considerable distance 
(and in the cities by intervening buildings) from the distillery. 
Brands upon barrels certifying to inspection and tax-payment 
were largely forged, to authorize removals ; and the branding 



206 PRACTICAL ECONOMICS. 

at that time being merely through the use of stencil plates, this 
forgery was very difficult of detection. The permission to re- 
move spirits from the distillery to a bonded warehouse, in 
anticipation of the payment of the tax upon the same, was also 
most prolific of fraud. Thus a permit would be given to trans- 
port, say one thousand barrels, naming the destination. In place 
of one lot ten might be started at different times and by dif- 
ferent routes. Should any lot be seized on the route, the 
permit would be offered and the spirits released. One lot 
would go on to warehouse, the remaining nine find their way 
into market with the taxes unpaid. The next steps would be to 
take the one lot that had found its way to the warehouse, out 
of the warehouse, under bonds for redistillation, or for a 
change of package; keep it out a few days, take out one half 
the spirit, and return it, when a pliant storekeeper would give 
the necessary certificates showing its return, and the bonds 
given for its removal would be cancelled. If the operators were 
determined, as they not unfrequently were, to steal from the 
Government to the last penny, the barrels would be returned 
filled only with water. Under such circumstances the ware- 
house would be speedily burned, with total loss of contents ; 
and it was very remarkable how often, in severe thunder-storms, 
the warehouses for distilled spirits seemed to become the central 
point in a large district for the attraction of the electric fluid. 
In one instance where a rectifying establishment, alcohol distil- 
lery, and Government bonded werehouse — all in the same build- 
ing — were seized and the transactions of the firm investigated, 
the bank-book of the storekeeper in charge, whose legitimate 
salary was $5 per day, was found to indicate transactions that 
could only have been expected of millionaire merchants ; while 
among the papers of the firm was a letter from an agent abroad 
urging further speedy shipments of spirits (water?) in bond, and 
containing the gratifying announcement that the consul had 
assured him that he "would merely count the barrels exported, 
and not examine their contents." In New York City, landing 
consular certificates of spirits exported were made merchandise, 
and obtained without difficulty; and there can be but little 
doubt that the " whiskey-ring," in some instances, in order to 
have willing tools in foreign ports, actually had consuls ap- 
pointed, and their appointments confirmed by the Senate. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 20/ 

As one further curious result and feature of this state of 
things during the last year of the continuance of the $2 tax, 
the Committee on Retrenchment of the House of Representa- 
tives reported in March, 1868, that the control of the business 
of rectifying spirits, distillation of alcohol, and also the whole- 
sale dealing in spirits, had passed, to a very great extent, into 
the hands of the Jews; and that hardly any honest citizen was 
engaged in any of these departments of the business. " For 
three years," continues this same report, ''efforts have been 
made to collect this tax (/. e. of $2) ; each year the frauds have 
increased, but not the revenue. The operators throughout 
have possessed more ability than Congress, more shrewdness than 
the Revenue Department. No sooner would a regulation of 
the department or an act of Congress be passed than means 
would be devised to evade it. The human intellect seems far 
more inventive, and skill far more effective, when to incentive 
to gain is added the chance of providing security against detec- 
tion and punishment." " Men rush into schemes [for defrauding 
the Government under the spirit tax of $2] with the same zeal 
that enthusiasts do to new gold fields." 

It is to be also noted that the number of licensed distilleries, 
which in 1864 was 2,415, or in the ratio of one to every 
17,242 persons, had increased in 1868 to 4,721, or in the ratio 
of one to every 8,058 of the population. In short, the tax 
of $2 (amounting to 1,000 per cent, advance on the average 
cost of manufacture) and the enormous profits contingent 
upon the evasion of the law, coupled with the abundant oppor- 
tunity which the law, through its imperfections and the vast 
territorial area of the country, offered for evasion, created 
a temptation which it seemed impossible for human nature 
as ordinarily constituted to resist ; and the longer the tax re- 
mained at a high figure, the less became the revenue and the 
greater the corruption. Thus during the year 1866-7 the revenue 
directly collected in the United States from spirits distilled from 
other materials than fruits was $29,198,000, and in 1857 $28,- 
296,000, indicating an annual product respectively of 14,599,000 
and 14,148,000 gallons. But during the succeeding year, 1868, 
with no apparent reason for any diminution in the national 
production and consumption of spirits, and with no increase, 



208 PRACTICAL ECONOMICS. 

but rather a diminution, in the volume of imported spirits, the 
total direct revenue from the same source was but $13,419,092, 
indicating a production of only 6,709,546 gallons; proof-spirits 
at the same time being openly sold in the market, and even 
quoted in price-currents, at from five to ten cents less per gallon 
than the amount of the tax and the average cost of manufac- 
ture. We have also in these figures the materials for approxi- 
mately estimating the measure and strength of the temptation 
to evade the law, and the amount of profit that must have 
accrued in the single year 1868 from the results of such evasion. 
For as the consumption of distilled spirits in the country during 
that year was probably not less than 50,000,000 gallons, and as 
out of this the Government collected a tax upon less than 
7,000,000, the sale of the difference at the current market-rates 
of the year, less the average cost of production (even if esti- 
mated as high as 30 cents), must have returned to the credit 
of corruption a sum approximating $80,000,000. To this must 
be added a further unknown but undoubted loss of revenue, 
growing out of the circumstance that the influence of suc- 
cessful fraud in the matter of spirits seemed to infect and 
demoralize almost every other department of the internal 
revenue. 

But notwithstanding all these facts were for three years an- 
nually reported upon, and in detail, by officials of the Treasury, 
and were also generally recognized and commented on by the 
press, it was with the greatest difficulty that Congress could 
be induced to take any action looking to remedies by the enact- 
ment of some perfect laws, by providing for more efficient 
administration, or for diminishing the temptations to fraud by 
diminishing the tax; and it was not until the revenue from dis- 
tilled spirits bade fare to disappear altogether, and the popular 
manifestations of discontent became very apparent, that any 
thing really was accomplished ; a report from the Committee 
of Ways and Means of the House of Representatives, in favor 
of a new law and a reduction of the tax, having been actually 
prevented in 1867, and action delayed thereby a whole year, by 
an appeal of a leading member of the Committee — who has 
since posed as a great statesman — for postponement of action, 
on the ground that it would be derogatory to the honor of a 



OUR EXPERIENCE IN TAXING DISTIIIED SPIRITS. 209 

great nation to confess, " after having put down a great re- 
bellion, that it could not collect a tax of $2 per gallon on 
whiskey." There may have been instances in history where 
one single speech of an individual has led a nation into war and 
into consequent great losses and expenditures, but there prob- 
ably never was a speech in reference to the civil polity of a 
government which can be proved to have been as expensive as 
the silly utterances above quoted. For reform being thus de- 
layed, the direct revenues from all distilled spirits fell off in the 
fiscal and succeeding year, 1868, to the extent of $14,874,000 as 
compared with the receipts from the same sources for the pre- 
vious year, 1867, or from $29,164,000 to $14,290,000; while on 
the other hand, when by the act of July, 1868, the direct tax 
was reduced to 50 cents per proof-gallon, the receipts for the 
ensuing and incomplete fiscal year increased at once to the 
extent of nearly $20,000,000, or from $14,290,000 in 1868 to 
$33,738,000 in 1869; or, including all taxes on the manufacture 
and sale of distilled spirits, licenses, etc., from $18,655,000 in 
1858, to $45,071,000 in 1869. And as there is no question that 
this advance might have been realized through legislation in 
the previous year but for the influence of the speech of the 
"statesman" in retarding action, the direct cost of his words 
may be fairly estimated at over twenty-six millions of dollars, 
to say nothing of indirect losses to the Treasury contingent 
on the continuance for another year of a system which magni- 
fied temptations and made frauds easy. 

It is to be here stated that in preparing the law of July, 
1868, by which the direct tax was reduced from $2 to 50 cents 
per gallon, the intent of the writer, which was realized, was to 
make the total aggregate tax 65 cents per gallon, but to impose 
only 50 cents as a maximum tax on the spirit as an article 
of manufacture, and to distribute the balance (15 cents) in the 
way of licenses, fees, etc., at points intermediate between the 
manufacture of the spirits and their final sale to consumers, 
but so remote from and so disconnected with the process 
of manufacture as to render collusion between producers and 
distributors with a view to gain by evading the law almost 
wholly impracticable. Another leading object was to fix the 
direct tax at such a sum as would diminish the temptation to 



210 PRACTICAL ECONOMICS. 

fraud to the greatest possible extent consistent with the pro- 
curement of such an amount of revenue as was demanded by the 
necessities of the Government. The rate of 50 cents per proof- 
gallon, recommended by the writer, who was then " Special 
Commissioner of the Revenue," and subsequently adopted by 
Congress, was fixed upon, because investigations showed that 
on the average the product of illicit distillation costs through de- 
ficient returns, the necessary bribery of attendants and the 
expense of secret and unusual methods of storage and trans- 
portation, from two to three times as much as the product of 
legitimate or legal distillation. So that, assuming the average 
cost of spirits at that time in the United States to have been 
20 cents per gallon, the product of the illicit distiller under 
the most favorable circumstances would cost from 40 to 60 
cents, leaving but 10 cents per gallon as the maximum profit 
to be realized from fraud under the most favorable conditions — 
an amount not sufficient to offset the possibility of severe 
penalties of fine, imprisonment, and confiscation of property, 
which were made essential features of the new enactment. 
Another feature of the new laws, never before attempted, was 
a requirement that the original taxes en the spirit, as well as 
the license taxes on its subsequent manipulation and sale by rec- 
tifiers and wholesale dealers, should be paid by means of various 
stamps affixed to the packages containing the spirits, — which 
stamps, through their numbers, devices, and record, established 
the identity of the spirits wherever found, and their relations to 
the various tax requirements. This system, originally proposed 
and worked out by the writer, was at first violently opposed as 
wholly impracticable ; but was finally adopted, and, after some 
modifications suggested by experience, has proved in the highest 
degree practicable and successful. A similar stamp system for 
collecting the internal-revenue taxes on fermented liquors and 
smoking tobacco w^as also, on the recommendation of the writer, 
adopted by Congress, and has also proved successful. 

In answer now to a question which those who have followed 
this narrative may naturally put, " What was the sequel to this 
radical change in this department of the revenue laws of the 
United States as it existed in 1868?" it may be said, without 
the possibility of challenge or contradiction, that in the whole 



OUR EXPERIENCE IiY TAXING DISTILLED SPIRITS. 211 

history of political economy, finance, and jurisprudence there 
never was a result that so completely demonstrated the value of 
careful scientific investigation in connection with legislation. 
IHicit distillation practically ceased the very hour the new law 
came into operation ; and evasions of the law were confined to 
occasional false returns, and a re-use, on a very limited scale, of 
the stamps with which the tax was for the first time made pay- 
able by purchase and cancellation. Industry and the arts ex- 
perienced a large measure of benefit from the reduction in the 
cost of spirits, more especially in the form of alcohol ; while the 
Government collected during the second year of the continuance 
of the new rate and system, with comparatively little friction, 
three dollars for every one that was obtained during the last 
year of the two-dollar tax. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 

{^Tkis article is an original contribution to this series.) 
IV. 

IT is essential to the completeness of this history, and before 
proceeding further in the course of its direct narration, to 
specially notice, at this point, another extremely interesting 
phase of the attempt of the Government of the United States to 
assess and collect, during the years 1865-68, an extraordinary 
high tax on domestic distilled spirits. 

As soon as it became evident that neither laws bristling with 
pains, penalties, and forfeitures, nor increased vigilance on the 
part of their administrators, would sufifice to overcome the temp- 
tation created by, and ensure the collection of, the tax of $2 per 
proof-gallon, the American mind, with its fertility of resources, at 
once began to inquire if it was not possible to oppose and offset the 
exercise of great mental ingenuity for the furtherance of fraud 
with the product of equal ingenuity for the furtherance of hon- 
esty ; or, in other words, if it was not practicable to assess and 
collect the spirit taxes through mechanical devices that would 
neither lie, steal, nor be amenable to temptation to do other than 
what it was their legitimate function to do, and thus eliminate 
completely, or in a great degree, the element of moral responsi- 
bility from the ofifice of government inspector. And this question 
had been hardly suggested before it began to be answered by the 
submission to the Government (Treasury Department) of such a 
variety and number of machines and devices for solving the in- 
volved problem, that the Commission appointed to examine into 
the matter, and of which the late Prof. Henry, of the Smithsonian 
Institution, was Chairman, characterized the exhibit and contri- 
butions " as truly astonishing," and as strikingly illustrative " of 
the prevalence in this country of the inventive faculty." ' 

* It is not the intent of the writer, however, to here convey the impression that the 
idea of attempting to collect the spirit tax through mechanical methods was altogether 

212 



OUR EXPERIENCE IN TAXING DIS7ILLED SPIRITS. 213 

Most of these inventions or devices were in the nature of 
" meters," designed to be attached to the " worm," or discharge 
pipe, of the still, and with such provisions of mechanism as to 
register automatically, and with security against unlawful inter- 
ference, not only the quantity of liquid composed of alcohol and 
water that passes from the "worm," but also afford the data 
for determining the amount of proof-spirits (the basis for assess- 
ment) contained in the compound. The mechanical difificulties 
involved in the construction of such a piece of mechanism, or 
" meter," as will perform all the duties required of it, are exceed- 
ingly great, and, as experience so frequently proved, can only be 
approximately overcome under any circumstances. Thus, to 
illustrate, it may be stated that the quantity of spirits contained 
in a mixture of alcohol and water can only be determined by the 
less specific gravity of the compound as compared with pure 
water ; but which mixture, however, is not the same as the average 
specific gravity of the two liquids composing it, inasmuch as 
there is a shrinking of bulk when alcohol and water are mingled. 
." A quart of alcohol and a quart of water when mixed form a 
compound of less volume than the sum of the two ; besides which 
the specific gravity of the compound is largely affected by heat 
as well as by the quantity of spirits it contains. Hence for ascer- 
taining the quantity of alcohol in a given amount of the mixture, 
recourse must be had to tables constructed by actual experiment, 
in which known quantities of alcohol are mixed with water and 
the specific gravity taken at different temperatures. From these 
tables the quantity of spirits in a given amount of the mixture is 
determined by inspection, when the specific gravity and tem- 
perature at which it is taken are known." The essential elements 
of a perfect spirit-meter are therefore as follows: " It must furnish 
automatically a registration of the data for determining the quan- 

original with American inventors ; for the problem in question had for many years 
previous occupied the attention of the legislators and mechanicians of Europe, and had 
resulted in tlie practical employment, to some extent, of mechanical devices in both 
Austria and Prussia. But at the same time it is probably true that American inven- 
tors, at the time they interested themselves in the matter, had, as a general thing, no 
knowledge of any previous European experience in the same direction, and also (as it 
appeared from the examination of the best European results by the Commission) that 
in a very brief time they not only covered all the ground previously passed over by for- 
eign inventors, but attained a much higher degree of successful achievement than had 
heretofore been accomplished. 



214 PRACTICAL ECONOMICS. 

tity, the specific gravity, and the temperature of the Hquid which 
passes through it, or give the quantity and at the same time re- 
serve samples, consisting of precise aliquot parts of the whole, for 
subsequent test with the hydrometer. In addition to all this, the 
construction of the meter must be such as not to render it liable to 
derangement by the ordinary operations or accidents of the dis- 
tillery, or to be tampered with for the purpose of fraud." 

Notwithstanding these inherent difficulties of the mechanical 
problem in question, a very large number of most ingenious 
pieces of mechanism, in the nature of meters, were, as already 
stated, offered to the Government, and for each of which a high 
claim for excellence or usefulness was preferred ; the incentive to 
these inventions having been the prospect that in case of the 
acceptance of any one of them by the authorities, a large profit 
would result to the inventor from the manufacture of the great 
number of machines that would be required, and the royalty or 
compensation that would be given for their use. And Congress, 
in order to determine whether any of them were certain or likely 
to accomplish the result desired, authorized, in 1868, the appoint- 
ment of a Commission of scientific men and mechanical experts, 
and the fitting up of a working distillery near Washington in order 
to thoroughly test the whole matter. 

It is not the province of this article to either enumerate or 
attempt to describe in detail the construction of the various 
contrivances examined or tested by this Commission ; but 
those interested will find all the information desired in a report 
submitted to the 40th Congress, at its 2d session. (See Executive 
Document, House of Representatives, No. 214, 1868.) It is sufifi- 
cient to here say that the Commission reported that " none of the 
meters offered fulfils all the conditions deemed necessary for a 
perfect meter, particularly in regard to the quantity of proof-spirits 
dependent upon temperature " ; and further, and speaking gener- 
ally, " that no single apparatus or contrivance for protecting 
distillation against fraud is sufficient ; although by the use of a 
meter and other appliances frauds may be rendered more diffi- 
cult, and their detection more certain." It was, however, agreed 
that several of the meters submitted to them possessed a high 
degree of excellence and usefulness, and that one in particular so 
nearly fulfilled the requirements of such an instrument as to 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 21$ 

warrant a recommendation of its use on the part of the Govern- 
ment. This was the invention of the late Mr. Isaac P. Tice, a 
man who for ingenuity is entitled to rank among the most 
remarkable of American mechanics ; and who had previously won 
distinction by the invention of a machine for cutting mouldings 
on irregular curved surfaces — as, for example, a stair-rail, — and 
during the war period, when cotton became scarce and most 
expensive, for the manufacture and extensive introduction of 
" string " or " twine " composed of paper. Mr. Tice was in fact the 
pioneer in the United States, in proposing to collect the tax on 
distilled spirits by mechanical methods ; and a hundred sets of 
his meter, which was the first that was ready for practical use, 
were ordered by the Treasury Department, after practical testing, 
in 1867, or a year before the final report of the Government 
Commission and their obligatory use in all distilleries. 

In addition to constructions in the nature of " meters," 
many other very curious devices, all having in view the prevention 
or restriction of frauds in the collection of the taxes upon spirits, 
were brought to the attention of the Commission. One fruitful 
source of fraud was the great difficulty of identifying any partic- 
ular lot of spirits after it had passed out the distillery or ware- 
house, owing to the facility with which the official brands or 
marks of the inspectors could be removed or altered ; spirits inca- 
pable of identification on seizure as being of illicit origin, being 
safe from forfeiture. To remedy this one inventor proposed the 
obligatory use of a peculiar barrel-head, which should be issued 
by the Government the same as stamps, and the peculiarity of 
which consisted in forming raised surfaces by turning concentric 
grooves in the head of the barrel, and on which surfaces the 
marks or brands required by law, and indicating inspection, 
were to be stamped. It was claimed that such branding could 
not be removed or altered without so cutting or defacing these 
raised surfaces, that the illegal re-use of a barrel with the pre- 
scribed head would be at once evident ; and that every barrel, 
once marked or branded with the proper marks and numbers on 
such surfaces, would always carry with it its own history and 
identification. Other inventions related to the use of receipts and 
coupons for tracing and identifying the track of each barrel of 
spirits on the way from the distiller to the consumer ; to safes 



2l6 PRACTICAL ECONOMICS. 

for enclosing the meters when attached to the stills ; to novel 
forms of hydrometers and other distillery adjuncts and appliances. 
Tice's meter continued to be used by the Government as an aid 
for the collection of the spirit tax for a period of about four 
years. There was always, however, and from the very first, an 
opposition to it on the part of the distillers ; in the main, undoubt- 
edly, for the reason that it rendered fraud more difificult than 
under the old methods of supervision, and partly because of its 
expense (first cost, erection, and supervision), which the Govern- 
ment made chargeable upon the distiller. With the reduction of 
the tax from $2 to 50 cents per proof-gallon in 1868, and the con- 
clusive evidence subsequently afforded that the incentives to 
fraud had thereby been greatly decreased, and the necessity of a 
mechanical safeguard diminished, its employment was felt to 
be less necessary, and in 1S71, by order of the Department, and 
in compliance with the wishes of the distillers, its obligatory use 
in distilling was discontinued ; and from that time no meters of 
any kind have been in use in American distilleries. 

The specific tax on distilled spirits of 50 cents per proof- 
gallon remained in force from July 1868 to August 1872, a period 
of a little more than four years. During this period the tax was 
assessed and collected on an average production of 67,175,822 
proof-gallons per annum, yielding an average annual revenue of 
$33,563,161, and indicating an average annual consumption for 
all purposes of the country of about 1.65 proof-gallons per capita. 
For the period of four years immediately preceding the fiscal 
year 1868-9, under a tax of $2.00 per proof-gallon for three years, 
and $1.50 and $2.00 for one year (1865), the tax was assessed and 
collected on an average annual production of only 8,603,815 proof- 
gallons per annum, yielding an average annual revenue of 
$21,727,000, and indicating an average annual consumption of 
only about 0.25 proof-gallon per capita. 

But, notwithstanding these satisfactory results, the law autho- 
rizing the reduction of the tax from $2.00 to 50 cents per proof- 
gallon had hardly become operative, when agitation commenced 
for its repeal or modification. Speculators had the idea that 
the old scheme of increasing the tax after a little lapse of 
time, without making the increase applicable to stocks on hand, 
was, with its gainful prospects, again within the range of possi- 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 217 

bilities. The distillers, as was natural, chafed at being made 
subject to new restrictions ; while very many extreme advocates 
of temperance, untaught by, and caring nothing for, the record of 
recent experience, were inclined to regard the new and compara- 
tively low tax as impolitic and in the light of the removal of a bar- 
rier against the spread of intemperance. Pending the continuance 
of the low tax, the Administration of the National Government 
also changed. Gen. Grant succeeded to the Presidency in 1869, 
and with that singular infelicity which characterized so many of his 
civil appointments, he selected in the first instance, for the head 
of the Internal-Revenue Bureau, a Western politician, with a large 
preponderance of the demagogue element in his composition ; 
and after a service of about two years, replaced him with a former 
general of cavalry. It is almost needless to say that under the 
administration of these two appointees, the management of 
politics and patronage was the matter of prime consideration, and 
that neither of them evinced any interest in, or any knowledge of 
any economic principles or experiences. At the sam-e time the 
new Administration, carrying out the principles of what was then 
(and even now) claimed to be " the best civil service in the 
world," removed for political considerations nearly all the other 
Internal-Revenue officials who had been appointed or continued 
in of^ce by the previous President (Andrew Johnson), and 
replaced them for the most part with men having little or no 
acquaintance with the details of the revenue system ; an experi- 
ment which cost the country nearly nine millions of dollars in a 
single year in the one department of distilled spirits ; for to this 
extent, and mainly from this cause,' the revenues from this source 
declined during the year 1870-71 ; recovering three and a quarter 
millions in the succeeding year (1871-72), as the new officials 
became more conversant with their duties. The exceptional 
office of " Special Commissioner of the Revenue," which had 
' Almost conclusive evidence of the truth of this assertion is to be found in the cir- 
cumstance that, without any change in the fiscal or industrial condition of the country, 
or in the rate of tax, or law of administration during the year in question, the fallintr 
off of revenue above noted, occurred mainly in the single item of the "gallon tax " on 
the spirit product, which legitimately could only have occurred through decreased pro- 
duction ; while the revenues received from the sales of wholesale and retail dealers in 
spirits during the same year, collected under a different system of administrative 
inspection, in place of showing a corresponding decrease, actually increased ; a result 
that could only have been attained through an increased popular consumption. 



2l8 rRACTICAL ECONOMICS. 

expired by limitation of law, having been also discontinued by 
Congress in accordance with the desire of the then Secretary of 
the Treasury, and there being in consequence no officer whose 
duty it was to specially report on the working of the revenue 
system, all the circumstances for again effecting a change in 
the rate of tax on distilled spirits were thus made favorable ; 
and this change, Congress in June, 1872, decided to make, by 
advancing the direct tax from 50 to 70 cents per proof-gallon ; 
spirits on hand being again excepted. The argument which 
carried weight, and was mainly instrumental in inducing action 
by Congress, was exceedingly specious (apparently fair), and 
involved so many points of economic interest, that any narrative 
of the events under consideration would be incomplete that failed 
to exhibit it with somewhat of detail. 

Thus, when the proposition was first made to reduce the tax 
from $2 to 50 cents per proof-gallon, the object was not to relieve 
the manufacture of distilled spirits from any burden, for it was 
generally agreed that it was desirable to collect as much revenue 
as possible from this branch of production or business; but 
wholly with a view of putting a stop to an acknowledged wide- 
spread system of fraud, and of enabling the Government to 
collect from spirits a reliable and legitimate revenue. And ac- 
cordingly in advocating the reduction of the gallon tax to 50 
cents, the writer, as has been before stated (see preceding article), 
proposed, as an essential feature of this scheme of revenue reform 
to compensate in part for such reduction, by imposing certain new 
and supplementary taxes on the spirit product, at points so sepa- 
rate from the immediate results of manufacture— namely : measure- 
ment, storage, and local transportation — as to prevent the col- 
lusion of separate interests, or the employment of any common 
methods or agencies for the purpose of tax evasions ; care being 
at the same time taken to avoid fixing such supplementary taxes 
at rates so high, as to create any new and undue temptations for 
fraudulent practices. And with this intent, there was incorpo- 
rated with the act reducing the gallon tax to 50 cents, the fol- 
lowing other taxes which had not previously formed a part of the 
(spirit) revenue system : 

First, a so-called ^'capacity-tax,'' or tax on each distillery, 
proportioned to its capacity for spirit-production as determined 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 219 

by a Government survey. Thus, on all distilleries having an aggre- 
gate capacity for mashing or fermenting 20 bushels of grain, or 
less, or 60 gallons of molasses, or less, in 24 hours, the capacity- 
tax per day was fixed at $2, and on distilleries of greater capacity, 
an addition of $2 per day was levied for every 20 bushels of grain, 
or 60 gallons of molasses, increased capacity. It was assumed, 
moreover, that every distillery worked continuously, unless a 
Government permit or certificate authorizing and defining its sus- 
pension could be exhibited. SECOND, a special annual tax was 
imposed on all distillers, proportioned to their aggregate annual 
production ; distillers producing 100 barrels, or less, per annum 
paying $400, while for those distilling in excess of this quantity, 
$4 additional was charged for every barrel of product over 100 
barrels. Each distiller, moreover, was compelled to reimburse to 
the Government all the expenses incurred by it for compensation 
to gangers and store-keepers who were detailed to his establish- 
ment, and in this way an inducement in the shape of diminished 
expense was offered to every distiller to conduct his establishment 
in such a manner as to require the minimum of employment of 
governmental officials. The tax per gallon, therefore, although 
nominally but 50 cents, was in reality much greater, and in fact 
finally approximated to, if it did not fully equal, the sum of 75 
cents.* How fully, furthermore, experience vindicated the correct- 
ness of the theory which prompted the idea of these supplemen- 
tary taxes is shown by the fact, that the revenues of the so- 
called " capacity " and " barrel " taxes for the year 187 1-2, the last 
full year of the 50-cent rate, were $2,010,986 and $6,489,786 re- 
spectively, or $8,500,772 in the aggregate ; a sum representing 
nearly two thirds of the revenue directly collected in 1868 under the 
$2-gallon tax, from the entire spirit product of the country. Very 
curiously, however, the merits and success of these supplemen- 
tary taxes were made the basis of the strongest and almost only 
argument presented to Congress, by those who had not sufificient 
intelligence to comprehend and appreciate the economic principle 
involved in them, or whose pocket interests were antagonistic, for 
a repeal of the 50-cent gallon tax and the imposition of a specifi- 
cally higher rate ; it being urged that it was in accordance with 

' A calculation made by the Chamber of Commerce at Cincinnati made the whole 
tax on a gallon of whiskey {in first hands) under the law of 1868, 63.47 cents. 



220 PRACTICAL ECONOMICS. 

all sound principles of political economy to concentrate rather 
than diffuse and multiply taxes, and that if the "gallon," the 
" capacity," and the " barrel " taxes were all consolidated into 
one tax, and that imposed on the gallon, the same amount of 
revenue could be collected with much less friction and expen- 
diture. And ostensibly under the influence of this argument. 
Congress, in June, 1872, by an act, which took effect in the fol- 
lowing August, increased the " gallon " tax to 70 cents, and at 
the same time repealed the " capacity " and " barrel " taxes. The 
immediate result of this legislation is best indicated by the state- 
ment: that during the last year (1871-2) of the 50-cent-gallon 
tax, the quantity of spirits distilled from materials other than 
fruits upon which the Government assessed and collected the 
tax, was 65,145,880 gallons, while in 1874, the second year of the 
70-cent tax, the quantity of like spirits upon which this rate was 
collected, was only 61, 8 14,800 gallons, a falling-off of over 3,000,000 
gallons, notwithstanding an increase in the meantime in the popu- 
lation of the country of about two millions. On the other hand, 
it should in fairness be also stated that the country, financially and 
industrially, was far less prosperous in 1874 than it was two years 
previous, or in 1872. But at this point commences the record of a 
period of such utter and shameless corruption on the part of 
high officials of the Federal Government, and in connection with 
the administration of the Internal-Revenue laws pertaining to 
distilled spirits, as finds no parallel in any previous experience 
of the country ; and for the complete narration of which the 
opportunity has possibly even yet not arrived. The essential 
circumstances of the case are, however, as follows : 

When the act of 1868, reducing the gallon tax on distilled 
spirits, was passed, illicit distillation, as before stated, practically 
ceased. In saying this, it is not pretended that it was absolutely 
and entirely suspended, for with any tax on such a product, 
there will undoubtedly be always some evasions of the law, as 
circumstances favor. But it existed, if at all, to a very small 
extent, and ceased to attract the attention of the public. The 
general removal and replacement of revenue officials during the 
earlier years of Gen. Grant's first administration undoubtedly, 
however, favored the revival of fraud, and in 1871 a large number 
of distilleries in Missouri were seized and proceedings against 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 221 

their proprietors instituted. The political excitement in this 
State was at that time very great. A strong party, nominally Re- 
publicans, headed by Carl Schurz (who at that time represented 
Missouri in the United States Senate), were opposed to Gen. 
Grant, and it was reasonably apprehended that their influence 
during the succeeding year would be most antagonistic to his 
renomination and election. To meet and overcome this oppo- 
sition and secure the vote of Missouri for Gen. Grant's renomina- 
tion was, therefore, regarded by the Federal office-holders of that 
State as their first duty, and for accomplishing such results a sup- 
ply of funds (money) was most important. Under such circum- 
stances the idea of taking advantage of the condition of the 
proprietors of the distilleries in difficulty with the Government, 
appears to have first suggested itself ; it being but reasonable to 
suppose that such proprietors, if their offences, with great con- 
tingent fines and other penalties, could be compromised or wholly 
abandoned in respect to prosecution by the suppression of evi- 
dence or other action on the part of the Federal officials, would 
in turn gladly contribute most liberally for such political expendi- 
tures as their friends might indicate. It is almost needless to say 
that this idea, once suggested, was promptly carried out. A gen- 
eral assessment was laid on all the distilleries in the Missouri 
district, with the understanding, on the one hand, that the pro- 
ceeds were to be used as a campaign fund to promote the interests 
of the Administration, and on the other, that the contributors 
were to be favored and protected as far as possible by the revenue 
officials and the representatives of political power and patronage 
at Washington. How much money was raised in the year pre- 
ceding the Presidential election of 1872, and professedly used in 
the preliminary State elections, is not known, but enough to buy 
the support of leading newspapers which were before in opposi- 
tion, and accomplish generally the ends proposed. Writing on 
this subject at a later period, Col. Wm. M. Grosvenor, who at the 
inception of these transactions was editor of the St. Louis 
Democrat, and in a position to know whereof he spoke, said : 

" More than one distiller has told me how he was induced to 
contribute, and how, if he objected to fraud, he was forced to 
choose between participation in the Ring or bankruptcy. If dis- 
tillers or rectifiers declined to act with the Ring, care was taken 



222 PRACTICAL ECONOMICS. 

to entrap them in some apparent or technical violation of the law. 
Then their establishments were seized, and they were told to see 
Mr. Ford (the Internal Revenue Collector). When they saw 
Ford they were told to go to some other parties not officially 
connected with the Government, who explained that if they (the 
distillers) did as was desired, there would be no trouble ; if not, 
they would be prosecuted and convicted of violation of law, and 
bankruptcy would be inevitable." 

During the year of the Presidential election (1872) Mr. Gros- 
venor expresses the opinion that about a thousand dollars per 
week was paid to the editor of one Administration paper, but that 
this large sum constituted " but a very small part of that portion 
of the profits which distillers were required to pay," and that of 
the whole amount about 40 per cent, went into the pockets of the 
higher officials. 

" One portion always went to the ' man in the country,' a 
phrase supposed to refer to somebody in Washington, for there 
was needed, and there was secured, somebody at Washington to 
give the Ring warning of the Treasury investigations and stop all 
complaints from reaching the Secretary or the President. Yet 
complaints were forwarded, sometimes to the Secretary and some- 
times to the President himself, without result. If investigations 
were ordered, either the person selected and sent out (to investi- 
gate) was one whose eyes and ears could be closed with a bribe, 
or the Ring was warned by telegraph before he had left Wash- 
ington, and had ample time to put every thing in readiness to 
receive him with equanimity. That complete immunity was 
thus secured at an early day is certain." 

Whatever was mysterious in these statements of Mr. Grosvenor 
at the time they were written was, however, explained to a great 
extent at a later period, Avhen the Private Secretary of the Presi- 
dent of the United States, the Chief Clerk of the U. S. Treasury 
Department, who had previously been chief clerk of the Internal- 
Revenue Bureau, and the Supervisor of Internal Revenue for the 
Missouri District (who was appointed by Gen. Grant in spite 
of the earnest protest of Carl Schurz and other leading men in 
St. Louis), were all indicted and tried for frauds on the revenues, 
and the two latter convicted and sentenced to State Prison. It 
was also shown on his trial that $200 per week was regularly 
set aside by the Ring, as the compensation of the Chief Clerk. 

The Presidential campaign of 1872 having ended with the 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 223 

re-election of Gen. Grant, the motive originally assigned as a rea- 
son for collusion between the Government ofificials and the distil- 
lers could of course be no longer pleaded. It was not, however, to 
be expected, that a mine of wealth that had been so long and so 
profitably worked would be at once abandoned ; and as a matter 
of fact, the frauds, instead of decreasing, increased ; while the per- 
sons concerned became more audacious, and extended their opera- 
tions to New Orleans and most of the other important Western 
and Southwestern cities. The members of the Ring, furthermore, 
says Col. Grosvenor : 

" Openly boasted that it had a power at Washington which 
could not be resisted or broken. Moreover, the members undoubt- 
edly believed it themselves. They did not go about like men who 
had any thing to hide. Diamonds, for which official salaries 
would not account, were worn openly and purchased several 
thousand dollars' worth at a time, without attempt at conceal- 
ment. Officials with moderate salaries lived with their families at 
hotels, expending obviously more than their known incomes, and 
yet made open purchases of costly summer residences. If whiskey 
operators or discharged revenue officials threatened to make ex- 
posures at Washington, they were kindly invited to ' expose and 

be .' One at least tried it, and made a dead failure, came 

back to St. Louis, and was told he had better keep his mouth 
shut in the future, or he would get into the penitentiary for 
defrauding the Government. When McDonald (the supervisor 
afterwards convicted and sent to the State Prison) went to Wash- 
ington, he was received by the President and rode with him on the 
avenue. When the President visited St. Louis, McDonald was 
usually in his company, and as late as October, 1874, when the 
President visited the Fair, in the presence of 50,000 people, 
McDonald was at his side." 

At the same time the President (according to McDonald's 
subsequent confession) accepted as a gift from McDonald and 
his secretary, one Joyce, a pair of horses, a carriage, and gold- 
mounted harnesses, valued at more than $5,000. 

Matters continued in much the same way, without attracting 
any marked attention on the part of the public, and without any 
serious interference on the part of the Government, until the com- 
mencement of the year 1875, when the Hon. Benjamin F. Bristow 
—a man of great ability and integrity,— who had been appointed 
Secretary of the Treasury in the previous June (1874), and who 
had been gradually growing suspicious that the Government was 



224 PRACTICAL ECONOMICS. 

being largely defrauded in its collection of revenue from spirits 
manufactured in several of the large cities of the country, deter- 
mined to institute a searching investigation.* And as a preliminary 
step, he ordered on the 26th of January, 1875, a change, to take 
effect on the 15th of February, in the location and assignment of 
the ten ofificers, known as "Supervisors," to whom, in pursuance 
of an act of Congress, the general supervision of the working of 
the Internal-Revenue laws, in as many different sections of the 
country, was intrusted ; the idea being, that through such 
changes frauds would be likely to be uncovered, by reason of a 
lack of understanding between the distillers and the new officials; 
or, in other words, if there really were any honest supervisors, 
they would readily detect the complicity or neglect of their pre- 
decessors, and the manner in which the frauds were being perpe- 
trated. The mischief which such a measure entailed, being, 
however, at once apparent to the " Ring," its immediate suspen- 
sion or annulment became to them indispensable ; and such was 
their influence at Washington, that on the 4th of February the 
President of^cially and indefinitely suspended the order of the 
Secretary, and the changes comtemplated were prevented. Then 

' One of the most interesting and perhaps the primary incident that developed the 
suspicions of fraud entertained by the Secretary and the public into almost certainty, 
and one which the "Ring" could not have well anticipated, or if anticipated, could 
not have prevented, was the publication in 1874 by the Merchants' Exchange Associa- 
tion of St. Louis, in their annual report, of the movements — receipts and shipments — of 
distilled spirits in that city during the previous year. For when certain persons, curious 
in statistical inquiries, compared the receipts and shipments thus published, with the 
ofhcial (Government) reports of the spirits produced and paying tax in St. Louis, it at 
once became evident that the quantity locally consumed and shipped was greatly in 
excess of the quantity received and reported as manufactured ; which excess represented 
at that time a loss to the revenues, in the city of St. Louis alone, of about $r, 200,000 
per annum. This suggested a new mode of detecting the fraud — namely : an examina- 
tion of the bills of lading, or other commercial reports of receipts and shipments ; and 
without communicating his purpose to any of the Treasury officials, Secretary Bristow 
commissioned Mr. Coloney, then the commercial editor of the St. Louis Democrat, to 
make the investigation. Mr. Coloney accordingly "proceeded first to collect, as if for 
his newspaper, a complete statement of every bill of lading or shipment during the 
year ; not of whiskey alone, but of all other important articles, so that his object was 
not suspected " And when this was accomplished, a comparison of the shipments by 
operators in whiskey at St. Louis with the reports transmitted to Washington by the 
revenue officials, furnished at once conclusive proof of fraudulent practices by a large 
number of persons and establishments, and made possible the complete overthrow of the 
most powerful conspiracy ever formed against the revenue service in this country. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 22$ 

followed an experience which has no parallel in recent times in 
any country in Christendom, and the mere recital of which car- 
ries one back in memory to the old-time governments of Central 
Asia, or of Turkey, or possibly to France, under the ancien 
regime, when intrigue, distrust of all surroundings, and ability to 
conceal and mislead in respect to real intentions, were regarded 
as the prime essentials of successful statesmanship. For it was to 
a policy akin to this, that the Secretary of the Treasury manifestly 
felt himself compelled to resort, when the suspension of his order 
for the change of supervisors clearly demonstrated that he must 
first outwit the officials of the Government with whom he was 
associated, if he was to be able to prosecute his investigations to 
the end of maintaining the law and of exposing and punishing 
corruption. In place, then, of giving any further instructions to 
the officers of the Government specially charged with the ad- 
ministration of the revenues to enforce the laws, he carefully 
concealed from them his intentions, — even resorting to the inven- 
tion of a new cipher for telegraph and other correspondence ; and 
in their place, employed new and unofficial agents to bring his 
plans to maturity. And so successful was he in this, that not 
only were the suspicions of the conspirators in a great measure 
allayed, but plans even were formed by them for inducing the 
President to summarily remove the Secretary himself from 
office.* 

Meantime the subject of again increasing the gallon tax on 
distilled spirits had been brought before Congress, and, on the 
3d of March, 1875, a bill was passed, raising the rate from 70 to 
90 cents per gallon. There was comparatively little debate in 
either House of Congress on the merits of the proposition, mem- 
bers apparently feeling that the topic had already been sufficiently 
discussed, and only one prominent member of the dominant 
party in Congress — Hon. John Sherman — vigorously protested 
against its favorable consideration. It was, moreover, recognized, 
from the first, as a measure introduced and favored by the Ad- 

' I stopped at the Arlington House (Washington, April, 1875), where I met Sena- 
tor Dorsey, of Arkansas, and to whom I told my story of the manner in which Secre- 
tary Bristow was interfering with my affairs. The Senator advised me to join him 
in a determined effort to influence the President to dismiss Bristow, a suggestion which, 
if I had acted upon, would have undoubtedly prevented any exposure of the " Ring." 
— " Confessions of McDonald," p. 132. 



226 PRACTICAL ECONOMICS. 

ministration; the Chairman of the Commitee of Ways and Means 
in the House and his poHtical associates stating in all seriousness, 
when the bill was first reported, and as a reason for their endorse- 
ment of it, that the Commissioner of Internal Revenue — the 
same ofificial who, some three months later, was summarily dis- 
missed from office for suspected complicity with fraudulent trans- 
actions — was of the belief, that a dollar tax " could be collected 
zvith the same fidelity ivJiieh accojupanies its collection of seventy 
cents'";^ and "/ agree zvitJi the Commissione?' in his confident 
jiidgjnent that he can collect a tax of a dollar per gallon T ^ 
On the other hand it was brought out during the considera- 
tion of the bill in the House, that the Secretary of the Treas- 
ury had written to the Committee of Ways and Means, that 
he did not agree in opinion with the Commissioner, and 
regarded any increase of the tax as likely to prove injurious'; 
and it was also stated and not disputed, that " high wines 
manufactured in Cincinnati were at the time being shipped by 
the way of the Mississippi and the Gulf to New York, and there 
publicly sold, with all the contingent expenses of transportation, 
waste, interest, and commissions, at about one-half cent per 
gallon over the cost of their production in the very district in 
which the corn grows and the distillery runs." But all this 
availed little in view of the circumstance that the President, the 
Commissioner of Internal Revenue, and an active lobby favored 
the increase of the tax, and were undisguisedly desirous of the 
passage of the bill that required it. Had, however, the inten- 
tions and suspicions of the Secretary of the Treasury, and the 
conclusive evidence of extensive fraud and conspiracy which 
subsequently came into his possession, been then made public, 
the increased tax would unquestionably never have been author- 
ized by Congress ; for, reviewing all the circumstances, it can 
hardly be doubted that the idea of the desirability of an " in- 
crease " was in the first instance started by the Ring ; and that its 
members subsequently and successfully advocated it, through a 
desire to make their work more profitable, and their ability to 
protect themselves, through command of greater resources and 
temptations, more effective. 

' Henry L. Dawes. ' Ellis H. Roberts. 

'See Congressional Record, Feb. 1 7, 1875. 



OUR EXPERIENCE IM TAXING DISTILLED SPIRITS. 22/ 

While the bill was under consideration in the Committee of 
Ways and Means in the House, the matter of making the pro- 
posed increase of tax applicable to stocks of spirits on hand again 
came up for consideration, and it was agreed to recommend that 
such " stocks " — i. c, in original packages, estimated as amounting 
to about 11,000,000 gallons— should be taxed under the new law 
to the extent of fifty per cent, of the increase. The proposition, 
however, as in all previous cases, found no favor with Congress, 
and the bill passing without any such retroactive clause, the sum 
of $2,200,000 was in consequence at once legislated into the 
pockets of the distillers.' 

The increase of the tax was, however, the last measure of 
success which the " Ring " achieved; for, on the loth of May fol- 
lowing, the Secretary of the Treasury, having through his special 
methods of investigation secured evidence sufficient to render 
any further concealment of his plans unnecessary, commenced 
offensive operations by seizing a large number of prominent dis- 
tilleries and rectifying establishments at the West, and five days 
later summarily dismissing from office the Commissioner of In- 
ternal Revenue. Then followed in rapid succession the indict- 
ment and arrest of McDonald, the Missouri Supervisor; Joyce, 
the Special Revenue Agent ; Avery, the former Chief Clerk of 
the Treasury ; Gen. O. A. Babcock, the President's Private Secre- 
tary ; Wm. McKee, the proprietor of the St. Louis Democrat; 
Maguire, the Revenue Collector at St. Louis; and a great number 
of subordinate revenue officials and many distillers and rectifiers. 
McDonald, Joyce, McKee, and Avery were tried, convicted, and 
sentenced to the payment of heavy fines and lengthy terms of 
imprisonment. Maguire pleaded guilty ; while Babcock, who was 
able to enlist expert and able counsel for his defence, was ac- 

1 In connection with this maUer, the following incident is not a little interesting, 
and from a legislative point of view somewhat instructive. When the Committee of 
Ways and Means, in secret session, agreed to recommend to the House that a provision 
taxing stocks on hand to the extent of half the proposed increase of rate be incorpo- 
rated in the bill, special care was taken to keep the action of the committee secret, in 
order to avoid speculative action on the part of distillers and wholesale dealers. But 
within twenty-four hours exceptional orders for stamps, to the extent of half a million 
of dollars, came into the Department, for the purpose of taking whiskey out of bond 
and placing it beyond the reach of any prospective provisions for any additional 
taxation. 



228 PRACTICAL ECONOMICS. 

quitted. This result, in the minds of the public, was, however, 
regarded as having been due in a great measure to an extraordi- 
nary circular-letter written by the (then) Attorney-General of the 
United States, Hon. Edwards Pierrepont, to the United States 
District-Attorneys in charge of the case, and preceding the trial, 
to the purport that no immunity from subsequent prosecution was 
to be given to any guilty parties who might be inclined to pur- 
chase their safety by turning State's evidence. The obvious 
effect of this being to effectually prevent the Government from 
obtaining the evidence necessary to ensure conviction, Congress 
felt compelled to take cognizance of it, and by resolution of the 
House of Represenatives (Feb. 25th) the Attorney-General was 
asked for an explanation ; which explanation (when given) being 
regarded as unsatisfactory, the whole matter was then referred 
to the Judiciary Committee with instructions to examine and 
report. And this Committee, after reviewing in severe terms the 
course of the Attorney-General, recommended the adoption by 
the House of a resolution to the effect, that, in their judgment, 
" the Attorney-General should immediately revoke the instruc- 
tions covered and implied " in his letter, inasmuch as the position 
taken in it was in contravention of " the long-established rule 
relating to the testimony of accomplices in criminal actions," and 
which rule " is necessary to prevent combinations for criminal 
purposes, and greatly aids in the disclosure of conspiracies to 
commit crime." The trial of Babcock had, however, terminated 
before the Committee reported. Again, on the trial of Avery, 
Hon. John B. Henderson, formerly a United States Senator for 
Missouri, and a leading member of the St. Louis bar, was retained 
by the Government to assist the District-Attorney in the prose- 
cution, and made the closing argument in its behalf to the jury. 
A portion of this speech being regarded by the President as per- 
sonally offensive, he promptly manifested his displeasure by 
discharging Mr. Henderson from any further service as counsel 
for the Government. 

The further and final incidents of note in this most extraor- 
dinary and disgraceful record may be briefly summarized by 
saying: that McDonald, Avery, McKee, and Maguire were all 
pardoned by the President (Gen. Grant) before the expiration 
of the terms of imprisonment to which they were sentenced, and 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 229 

their fines remitted ; and that after the conclusion of the trials, 
the Secretary of the Treasury (Bristow) and the Solicitor of the 
Treasury (Wilson, who had been the Secretary's most earnest 
and active co-operator in exposing and breaking up the con- 
spiracy) resigned and retired from their respective ofHces.' 

Since the passage of the act of March 3, 1875, raising the tax 
on distilled spirits to 90 cents per proof-gallon, the rate to the 
present time of writing, 1885, has remained unchanged. Illicit 
distillation, as might naturally be expected under the temptations 
offered by such a rate of tax, constantly goes on, but on a very 
small scale in respect to quantity, and to a very limited extent in 
the Northern and Western States of the Union. For the period 
of seven years, from 1876 to 1S83 inclusive, the experience of the 
Internal Revenue has been reported as follows: Number of stills 
seized, 5,498; ofificers and employes killed, 36; ofificers and em- 
ployes wounded, 61. Of the 397 stills seized in the year 1883, five 
only were in the Northern and Western States, the others 
being mainly in the thinly settled and mountainous districts of 
the States of Kentucky, North Carolina, Georgia, Tennessee, and 
Virginia. In extensive regions in these States, the small farmers 
grow little besides corn, and in the entire absence of railways, and 
also to a great extent of roads, there is no way for them to bring 
their surplus corn to any market, except in the form of whiskey; 
and except for what may be paid them in cash for their whiskey, 
few farmers handle as much as twenty dollars in ready money in 
any one year. The result is that the inhabitant of these sections 
of the country feels that he has a right to transform his corn into 
whiskey, and that the Government is acting in a most tyrannical 
and unjust manner in seeking to prevent it. Hence the multi- 
plicity of " moonshiners," — as iUicit distillers are termed, — the little 
rude stills among the mountains, and the murder of the revenue 
officials who attempt to make arrests and break up the business. 

* Those desirous of more detailed information respecting the events of which a 
summary only has been here given, are referred to files of the leading newspapers and 
reviews of the United States for the year 1875, and the first half of the year 1876 ; 
also to a book entitled " Secrets of the Great Whiskey Ring," written by McDonald, 
and published in St. Louis (revised edition, 18S0). This book, which is in the nature 
of a confession, purports to give documentary proofs, comprising, fac-similes of confi- 
dential letters and telegrams directing the management of the Ring, and in respect t© 
most of its statements is probably unimpeachable. 



230 PRACTICAL ECONOMICS. 

The gross product that under these circumstances annually evades 
the payment of the tax is, however, comparatively inconsider- 
able. 

Regarded from an economic or financial stand-point, the 
results of the 90-cent (gallon) tax, as compared with those ob- 
tained under the 50- and 70-cent rates, are exceedingly interest- 
ing. Thus, during the last full year (1872) under the 50-cent 
rate, the tax was collected on 65,145,000 proof-gallons of dis- 
tilled' spirits, which, with an assumed population of 41,000,000, 
would include an average annual consumption of about 1. 50 
proof-gallons per capita. 

During the last full year (1874) of the 70-cent rate, the tax 
was collected on 61,145,000 gallons, which, with an assumed 
population of 44,000,000, would indicate an average annual con- 
sumption of about 1.40 proof-gallons per capita. 

During the year 1876, the first of the go-cent rate, the tax was 
collected on 56,442,000 gallons, which, with the then population 
of the country, would indicate an average annual consumption of 
about 1.23 gallons per capita. 

During the year 1880, under a continuation of the 90-cent 
rate, the tax was collected on 61,125,000 gallons, which, with a 
then known population of 50,155,000, would indicate an average 
annual consumption of about 1.2 1 gallons per capita. 

The revenues from spirits for the years 188 1-4 are valueless for 
estimating consumption ; as the payment of taxes, during these 
years, was made compulsory on large quantities of spirits in 
bond, by limitation of the bonded period of tax exemption. 

For 1885, the tax (90 cents) was collected on 67,689,000 
gallons ; but as large quantities of spirits were forced out of bond 
during this year also, there is reason for believing that the taxes 
were paid on a much larger quantity than actually entered into 
consumption. Assuming, however, the correctness of the official 
returns, the average consumption for 1885 would have been about 
1. 16 gallons per capita. 

' In these comparisons account only is taken of spirits distilled from materials 
other than fruits, /'. e., grain. The revenue laws of the United States, with a view of 
favoring the business, have always discriminated, through lower taxation, in favor 
of spirits distilled from fruits, i. e., brandies. The collections from such products are, 
however, comparatively inconsiderable, and in only one year {1873) have been in 
excess of two millions of dollars. 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 23 1 

On the basis of these data an approximate estimate of the 
fiscal productiveness of the low (50 cents) and high (90 cents) tax 
system, becomes possible. Thus during the year 1872, the tax was 
collected on an average annual consumption of at least 1.5 gallons 
per capita. Had this rate been maintained, the quantity available 
for taxation in 1885 would have been 87,000,000 gallons. The 
number of gallons assessed in 1885 was 67,689,000. 

Including the direct and collateral taxes the tax rate actually 
collected on distilled spirits, in 1872, amounted to 75.1 cents per 
gallon; which rate, if collected in 1885, on a per-capita con- 
sumption proportioned to that of 1872, would have afforded a 
revenue of over $65,300,000, as compared with an actual receipt 
from the same sources, under the 90 cent rate, of only $66,189,000; 
— a gain in revenue obviously insufificient to compensate for the 
advantages which would have certainly accrued under the lower 
tax through the reduction of incentives to illicit distillation, and 
of the first cost of spirits for industrial purposes. 

In explanation of an apparent inconsistency between the fact 
that the Internal Revenue has not of late years been able to 
assess and collect the tax on as large a per-capita production and 
consumption of distilled spirits as in 1870, and the opinion above 
expressed, that there is at present but comparatively little illicit 
production in the country, it is to be said : that while nearly all 
who have carefully examined into this subject are agreed that 
Federal taxation of distilled spirits has not (except possibly at 
the outset) affected their demand for drink, and that their con- 
sumption for such purpose in the United States goes increasing 
regularly (if not in an equal ratio) with the increase of population, 
the evidence on the other hand is conclusive that their use for 
economic and scientific purposes has been greatly restricted by the 
present high rate of tax imposed on their production. Prior to 
the imposition of any taxes on spirits, or before the war, it is 
probable that 33 per cent, at least of the whole product of the 
country was consumed in the arts and industries; but at the 
present time (1885) it is estimated, by those well qualified to form 
an opinion, that not over 10 per cent, of the total product is 
thus used. Artisans, manufacturers, and pharmaceutists who 
formerly consumed untaxed alcohol in great quantities, and to 
a considerable extent also when the tax on proof-spirits was 50 



232 PRACTICAL ECONOMICS. 

cents, now regard its use under the present tax rate as unprofit- 
able, and in consequence have either abandoned their old meth- 
ods of procedure or preparations, or resorted to the employment 
of cheaper substitutes. 

The aggregate amount of revenue received by the Federal 
Government from all the taxes which it has levied on the manu- 
facture and sale of distilled spirits from 1863 to 1884 inclusive, a 
period of twenty-two years, has been a thousand and fifty-six 
millions of dollars, or, in exact figures, $1,056,137,946.79. 

The magnitude of these results under the Federal system, and 
the apparent facility with which they have been attained, have 
naturally suggested from time to time to the several States of the 
Union, the special taxation of the manufacture and sale of distilled 
spirits within their own borders, as a means of increasing their 
local revenues. That the several States have the right to impose 
non-discriminating taxes on persons, property, and business within 
their own territorial jurisdiction, is not questioned ; but the 
almost insuperable obstacles in the way of the jr/.'-rzi^'/ taxation by 
any State of any of its local products — agricultural, mineral, or 
manufactured — are : that to just the extent to which such taxing 
increases the cost (price) of such State products, to a like extent 
is their export to and sale in other States, which do not similarly 
tax, restricted or prevented ; while, at the same time, as no State 
can impose taxes on importations from other States or from 
foreign countries, the imposition of special taxes on any of its 
products virtually constitutes bounties for the importation and 
competitive sale of the like products of other States which have 
not been subject to such special taxation. On the other hand, to 
attempt, with a view to obtaining large revenues, to impose and 
collect high taxes on the local sale and consumption of distilled 
spirits, was but to create undue temptations to fraud and to 
repeat the experience which the Federal Government had proved 
to be so disastrous. To overcome these difificulties the State of 
Virginia, some years since, enacted and put in operation an 
ingenious law, the object of which was to obtain a large revenue 
from taxes on the sale of spirits at retail, and to properly deter- 
mine and ensure the collection by machinery. With this object, in 
addition to the payment in advance of a prescribed amount for a 
license to sell, each bar-room keeper or retail liquor-dealer was 



OUR EXPERIENCE IN TAXING DISTILLED SPIRITS. 233 

required to hire from the revenue commissioner of his district an 
" apparatus," which resembled a gas-meter in appearance, and 
was termed a "bar-room register." Its operation was not dis- 
similar to that of the familiar "bell-punch," or "indicator," 
employed for registering fares in the street-railway cars of our 
large cities. The law further provided, that each bar-room 
keeper, " immediately on the sale of each drink of wine, ardent 
spirits, malt liquors, or any mixture thereof, in the presence of 
the purchaser or person to whom it is delivered, should turn the 
crank of the proper register until the bell has struck once, and 
the indicator on its dial has moved one point or number for each 
drink sold by him," The registers were required to be inspected 
monthly, and the tax imposed was two and one half cents for 
each drink or half-pint of wine or spirits, and half a cent for the 
same quantity of malt liquor. Wild expectations were indulged 
in respect to the results of this system, which was popularly 
termed, from the inventor, the " Moffat Bell-Pimch Law "; and 
some sanguine people, on the basis of an estimate of the average 
number of drinks purchased every day in the year throughout the 
State, were confident that revenue nearly or quite sufilicient 
would be obtained from this source to meet all the requirements 
of the State for expenditures. The experiment was not, how- 
ever, a success. The introduction of the " apparatus " was the 
only novelty in the law, and, with the exception of informers 
(who were allowed one third of the fine imposed for disobeying 
the law), and possibly also the manufacturer of the indicator, no 
one was particularly interested in its enforcement ; while every 
regular toper felt bound to connive at the infringement of a 
statute, the immediate influence of which was to raise the cost of 
drinking. The system, after a brief but sufificient trial, was, 
therefore, adandoned ; leaving as its only meritorious result, 
another illustration of the prevalent and apparently incurable 
delusion, that liquor laws can be made different in principle from 
all other laws ; and that if one could be framed with sufficient 
ingenuity, the ordinary characteristics of human beings, their 
instincts, desires, motives, might be complacently ignored.' 

I Additional light on the causes of the failure of the " Moffat Bell-Punch Law" 
may be gleaned fron the following comment on it, at the time of its repeal, by one of 
the leading journals of Virginia, The (Richmond) State ; 

"To say f.ie least, this law was not a success. The revenue from it was fast 



234 rnACTicAL economics. 

CONCLUSION. 

In concluding this most curious and not heretofore fully 
related record of recent economic experience, the writer would 
ask attention to what seems to him to be its most important and 
valuable lesson and moral, and that is: that whenever a govern- 
ment imposes a tax on any product of industry sufificiently great 
to sufificiently indemnify and reward an illicit or illegal produc- 
tion of the same, then such product will be illicitly or illegally 
manufactured ; and when that point is reached the losses and 
penalties consequent upon detection and conviction — no matter 
how great may be the one, or how severe the other — will be 
counted in by the offenders as a part of the necessary expenses of 
their business ; and the business, if forcibly suppressed in one 
locality, will inevitably be renewed and continued in some other. 
It is, therefore, a matter of the first importance for every govern- 
ment in framing laws for the assessment and collection of taxes, 
to seek to knov/ when the maximum-revenue point in the case of 
each tax is reached, and to recognize that in going beyond that 
limit the government " over-reaches " itself. 

But in an experience of now nearly a quarter of a century in 
making the manufacture and sale of distilled spirits, instrumen- 
talities for collecting revenues for the support of the Government, 
the United States, as represented by the makers and adminis- 
trators of its laws, has for the most part declined to seek for, 
or profit by, any such information ; but, on the contrary, as 
has been somewhat humorously expressed, " it has held out an 
undue temptation to defraud on the one hand, and a writ for 
seizure and indictment on the other, and thus equipped, has an- 
nounced its readiness to proceed to business." And the conse- 
quences have become a part of the world's economic history. 

growing less, not because the law hindered drinking, but because it gave every 
opportunity for fraud. Falling only on those who were honest enough to register their 
sales, it was never felt by those who chose to cheat the Government. As a law that 
could be obeyed or not at will, it could never be effective. Its inquisitorial nature 
made it repulsive, and the State is fortunate to be rid of it." 



INFLUENCE OF THE PRODUCTION AND DISTRL 

BUTION OF WEALTH ON SOCIAL 

DEVELOPMENT/ 

LADIES AND Gentlemen: — In welcoming you to this first 
meeting in the States of the Northwest, of the American 
Association for the Promotion of Social Science, with the 
address which ancient custom and a recognition of the fitness of 
things seem to require should be made by the presiding officer 
on such occasions, I propose to ask your attention to a line of 
thought touching the agencies which, perhaps more than any 
other, are contributing to the moulding and development of 
society — namely, the production or accumulation, and the distri- 
bution, of that which we call wealth, or capital ; meaning thereby 
abundance of all those things which contribute to our well-being, 
comfort, and happiness. 

And, in so doing, the first point I would ask you to consider 
is, that, out of all of his present accumulations of wealth, man 
has never created any thing. What Nature gives he appropriates; 
and in this appropriation, or collection of natural spontaneous 
products, consists the original method of earning a living, — the 
method still mainly depended on by all uncivilized and barbarous 
people. The first advance upon this method is to make provision 
for the future by carrying over supplies from seasons of abundance 
to seasons of scarcity, or in learning the necessity and benefits of 
accumulation. But, in all this, man does nothing more than the 
animals, who, following what we term the promptings of instinct, 
gather and lay up stores in the summer for consumption in the 
winter; and he lifts himself above the animals only when, and 
proportionally so, he learns that he can tempt Nature to give 
more abundantly, by bringing various kinds of matter and various 

1 Annual address as President of the American Social-Science Association, Detroit, 
May, 1S75. 

235 



236 PRACTICAL ECONOMICS. 

forces together, or into such relations as will enable them to act 
upon each other under the most favorable circumstances. And 
it is in the attainment and application of this knowledge of how 
to tempt Nature to give, — or, as we term it, " to produce," using 
to express our meaning most correctly a word which signifies '^ to 
lead forth,'' and not " to create,'' — that the distinction is to be 
found between the civilized and uncivilized methods of earning a 
living ; man in the one case being mainly a collector, and in the 
other a " drawer-out," or producer. And herein, furthermore, 
is to be found the characteristic, or, as Chevalier the French 
economist expresses it, " the mystery and marvel, of our modern 
civilization — namely, that, through the attainment and exercise of 
increased knowledge and experience, we have so far come to 
know the properties of matter and the forces of Nature, as to 
enable us to compel the two to work in unison for our benefit 
with continually increasing effectiveness; and so afford to us 
from generation to generation a continually increasing product of 
abundance, with a continually diminishing necessity for the exer- 
cise of physical labor." And, as some evidence of the degree of 
success thus far attained to in this direction, we have the simple 
statement,^ — yet of all things the one most marvellous in our 
experience, — that at the present time, in Great Britain alone, the 
force annually evolved through the combustion of coal, and ap- 
plied to the performance of mechanical work, is directly equiva- 
lent to the muscular power of at least one hundred millions of 
men ; or, to state the case differently, the result attained to is the 
same as if the laboring population of Great Britain had been in- 
creased twelvefold, without necessitating any material increase 
in production for the support and sustenance of this additional 
number. 

Another illustration to the same effect, but one more recent 
and less familiar, is afforded by the construction and operation of 
the Suez Canal. Thus, a few years ago, a swift voyage from 
England to Calcutta, vid the Cape of Good Hope, was from a 
hundred and ten to a hundred and twenty days. Now steamers 
by way of the canal make the same voyage in about thirty days. 
Here, then, is a diminution of seventy-five per cent, on the enor- 
mous stocks of goods continually required to be held unused, 
involving continued risk of depreciation, loss of interest, and cost 



PRODUCTION AND DISTRIBUTION OF WEALTH. 237 

of insurance, to meet the requirements of mere transit. Add to 
which the fact, that the improvements in marine engines enable 
these vessels to work with about one tenth less coal, and there- 
fore carry proportionally more cargo than they could seven or 
eight years before the canal was opened ; and that the construc- 
tion of the telegraph between England and India enables dealers 
and consumers also to regulate their supplies without carrying 
excessive stocks of commodities, and so keeps prices steady, and 
discourages speculation, — and we have in this single department 
of trade and commerce a saving and release of capital and labor 
for other purposes and employments that amounts to a revolution. 
What is yet to be accomplished in the way of increasing the 
proportion of product to manual labor, time alone can show; but 
there is no evidence at present to indicate that we are approach- 
ing any limitation to further progress in this direction. A writer 
in The London Economist in 1873, evidently most conversant with 
his subject, claimed that the industry of the population of Great 
Britain at that time, taken man for man, was nearly twice as pro- 
ductive as it was in 1850; and I do not think that any one can 
review the industrial experience of the United States as a whole 
since i860, but must feel satisfied that our average gain in the 
power of production during that time, and in spite of the war, has 
not been less than from fifteen to twenty per cent. And, if this 
statement should seem to any to be exaggerated, it is well to call 
to mind that it is mainly within this period that the very great 
improvements in machinery adapted to agriculture have been 
brought into general use : that whereas a few years ago men on 
the great fields of the West cut grain with sickles and with 
cradles, toiling from early morn to dewy eve in the hottest period 
of the year, the same work may be done now almost as a matter 
of recreation ; the director of a mechanical reaper entering the 
field behind a pair of horses, with gloves on his hands, and an 
umbrella over his head, and in this style finishing the work in a 
fraction of the time which many men would formerly have re. 
quired, and in a manner much more satisfactory.' I would also 

' The following illustration is even more remarkable and interesting. Forty years 
ago cr bss, Indian corn was shelled by a man sitting astride the handle of a shovel and 
Scraping the ears against the edge, or using the cob of one ear to shell the corn from 
another. A likely man could shell in this way about five bushels in ten hours, and re- 
ceived one tenth of the corn he shelled for his labor. Up to 1S7S, 378 patents had been 



238 PRACTICAL ECONOMICS. 

recall to you that, in the manufacture of boots and shoes, three 
men now, with the aid of machinery, can produce as much in a 
given time as six men unaided could have done in i860; that we 
have forty thousand more miles of railroad now (1875)' than we then 
had to assist us in the work of exchange and distribution ; that we 
can send our telegrams now for less than one half what it actually 
cost to do the work in 1866 ; and finally, taking the Pennsylvania 
Central Railroad as a type, that we can send our freight by rail- 
road at an average of less than a cent per ton per mile, as com- 
pared with a charge of 2.41 on the same road for the same service 
in 1864. 

And, as a curious instance of this continuous progress, it may 
be here also noted, that the abandonment of large quantities of 
costly machinery in most branches of staple manufactures, and its 
replacement by new, is periodically rendered a matter of absolute 
economical necessity, in order to produce more perfectly and 
cheaply, and at the same time avoid the destruction of a much 
greater amount of capital by industrial rivalry ; thus strikingly 
illustrating an economic principle to which attention was, I think, 
first called by my friend Mr. Atkinson of Boston — that the abso- 
lute destruction of what has once been wealth often marks a 
greater step in the progress of civilization than any great increase 
in material accumulation ; the breaking up and destruction of the 
old machinery, and its replacement by new, in the cases referred 
to, being the sole conditions under which a diminution of the cost 
of production could be effected, and the abundance of product 
be made greater. 

We are often accustomed to speak of, and perhaps look for- 
ward to, a period which we call " millennial," which is to be char- 
acterized in particular by an absence of want of all those things 
which minister to our material comfort and happiness. But when 

issued in the United States for corn-sliellers ; and the machinery for this purpose has 
been so perfected, that two men, with a machine driven by steam- or horse-power, can 
easily shell 1,500 bushels a day, the cobs being carried off into a pile by themselves or 
into a wagon, and the corn run into sacks or wagons, to be driven off in bulk. The 
corn crop of the United States for the year 1880 approximated 1,800,000,000 bushels. 
It would have required the entire population of the country at that time — every man, 
woman, and child of its fifty millions of people — to have spent the entire six working 
days of a week, and a part of Sunday, to have shelled the crop of that year by the old 
process. 

' 80,000 more ill 1S85. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 239 

that period arrives, if it ever does, one of two things must take 
place : either man must so far change his nature as to be able to 
exist in comfort without a supply of all those objects which are 
comprised under the general terms, food, clothmg, shelter, and lux- 
tiries\ or else the forces of nature must be so much further sub- 
ordinated and brought under our control as to do all our work for 
us, instead of, as now, doing but a part, — and thus become, in all 
respects, our all-sufificient ministers and servants. 

But, when that time comes, then all material wealth, as we 
ordinarily use the term, must disappear ; for that only is 
wealth which has exchangeable value, and that only has exchange- 
able value which is desired. But we can neither value nor desire 
that which, like the air, is at all times given in excess of any pos- 
sible use or necessity. 

But, fanciful as may be this speculation, it is nevertheless a 
most interesting and suggestive circumstance, that all of our true 
material progress constantly points in this same direction ; inas- 
much as the great result of every new invention or discovery in 
economic processes is to eliminate or discharge value ; making 
those things cheap which were before dear, and bringing within 
the reach and use of all what before were for the exclusive use and 
enjoyment of the few. Thus, in 1170, Thomas A Becket was 
counted extravagant because he had his parlor strewed every day 
with clean rushes ; and, four hundred years later, cloth was so 
scarce that Shakespeare makes Falstaff's shirts cost him four shil- 
lings per ell. But few are so poor nowadays as not to be able to 
afford some sort of a carpet for their parlor ; and, making al- 
lowance for the purchasing power of money at the different 
epochs, Falstaff's four shillings would now give him near forty 
times the same quantity. 

Again : Sir Henry Bracton, who was Lord Chief Justice of 
England in the time of Henry HI., wrote, in the way of legal 
illustration, that if a man living in Oxford engage to pay money 
the same day in London, a distance of fifty-four miles, he shall be 
discharged from his contract by reason of his undertaking to do a 
physical impossibility. But to-day, what Bracton regarded as im- 
possible can be readily accomplished in from sixty to eighty 
minutes. 

That this wonderful and continued increase in the gross prod- 



240 PRACTICAL ECONOMICS. 

uct of every department of human industry and enterprise has 
been also attended with a general rise in the standard of comfort, 
leisure, and enjoyment available everywhere to the masses, is 
sufificiently proved by not only the most superficial of observation, 
but also by a great variety of statistics, which, although not as 
yet in any degree formulated or referred to an average, are 
nevertheless exceedingly interesting. 

Thus, for example, the British commercial reports indicate 
that the ability of the populations of Russia and of Germany to 
consume cotton has at least doubled since 1851; that in Swe- 
den the increase has been fourfold ; and, in Paraguay, fivefold. 
And not merely has the consumption of cotton cloth increased in 
near and remote regions, but the ratio of absorption among the 
working classes of Europe, of articles which a generation ago were 
luxuries to them, has also been most rapid and remarkable ; the 
ratio of increase having been most marked in the average per 
capita consumption of meats, breadstuffs, tea, sugar, coffee, cocoa, 
wines, and spirits.' 

But, gratifying as these evidences of increasing abundance cer- 
tainly are, the cry of the poor, at least to the superficial observer, 
seems not less loud, and the difficulties of earning a living, or of 
getting ahead in the world, seem not less patent than they have 
always been ; while the discontent with the inequalities of social 
condition are certainly more strikingly manifested than at any 
former period. To understand fully the origin of this social para- 
dox, is to presuppose a full understanding of the whole domain of 
social science, or of the laws and phenomena involved in all socie- 
tary relations ; a degree and comprehensiveness of knowledge 
which it is safe to affirm has been attained by no man. But there 
is, at the same time, a record of experience indicating the duties 
incumbent on society in respect to some of these matters, which 
cannot too often be pressed upon the public attention. 

' Comparing 1883 with 18.40, the increase in the consumption per head of various 
articles of imported food hy the population of Great Britain, has been as follows : 

Sugar from 15 to 63 lbs.; tea, 1.22 to 4.59 ; butter, i to 7 ; bacon and hams, 1 to 
II ; wheat and wheat flour, 42^ to 250 ; cheese, i to 5|^ ; rice, i to I2|. Of tobacco, 
the increased consumption per head has been from 0.S6 lb. to i 43 lb.; and of spirits 
from 0.97 to 1.09 gall. During the same period, the decline in prices has been in the 
case of sugar from <^d. to 2d. cts. per lb. ; of tea, from 5^. to 2s. per pound ; and of 
coffee, from 2s. to \s. per pound. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 24I 

In the first stage of society, property can hardly be said to ex- 
ist at all, or it exists in common. In the second stage, individual 
rights appear; but property is to a great extent held and trans- 
ferred by force, and the generally accepted principle governing 
its distribution is, tJiat might confers rigJit. As society has pro- 
gressed, however, the reign of violence and lawlessness has gradu- 
ally diminished, until now the acquisition and retention of property 
has come to depend on superiority of intellect, quickness of per- 
ception, skill in adaptation, — the cunning and the quick being 
arrayed against the ignorant and the slow, — while the principle 
which has come to be the generally accepted basis of all com- 
mercial, industrial, and financial transactions, is succinctly ex- 
pressed by the coarse and selfish proverb: '' Every maji for himself , 
and the Devil take the hindermosty And if we consider these 
terms as symbolical, and for the word " Devil'' substitute absence 
of abundance — want, misery, and privation ; and for the word 
" hindermost" the masses, who constitute the bulk of every densely 
populated community, — then it must be admitted, that the Devil 
thus far has been eminently successful. But the governing and 
controlling influences of society — meaning thereby the rich, the 
well-to-do, and most-intelligent classes — have for a considerable 
time found out one thing of importance, and are beginning to find 
out another thing of even greater significance. 

The thing which they have found out is, that it is not for the 
interest of any portion of society, regarded simply from the point 
of view of individual selfishness, and not in accordance with the 
religion of Christ and humanity, to allow the Devil to take any- 
where, or to any extent, the hindermost ; and the thing which they 
are beginning to find out \%,\h2iX. the hindermost, who constitute, 
in this struggle for the acquirement and retention of property, the 
masses, are becoming fast conscious of their power and influence, 
and are determined of themselves, that they will not, if they can 
help it, be captured by this devil of civilization ; and, if obliged 
to succumb to h-im, may, like the communists of Paris, endeavor 
to draw down with them the whole fabric of society into one com- 
mon vortex of destruction. 

Out of the yfri'/ of these discoveries have come schools, hos- 
pitals, churches, sanitary and social reforms, the spirit and the 
power of charity, and all brotherly kindness ; out of the second. 



242 PRACTICAL ECONOMICS. 

strikes, trades-unions, the crystallizing antagonism of labor against 
capital, the spirit and the teachings of socialism, the practice of 
communism. 

It took society a good while to make the first discovery; but 
it has been forced upon it through bitter and costly experience. 
There was probably no less of kindness of heart five hundTed 
years ago among individuals than now, no less of natural sympathy 
with the poor, no less of individual religious zeal to do as we would 
be done by. But society certainly did not act as now in respect 
to those things which society only can properly control and regu- 
late ; as, for example, sanitary reform, general education, protec- 
tion of private rights, and the like. And for such neglect society 
paid the penalty ; for, when the black-death and the plague camc^ 
they were no respecters of persons, and the rich in common with 
the poor went down to the slaughter. But when the well-to-do 
classes of society found out that these foes had their origin in 
want of drainage, and especially in lack of ventilation and cleanli- 
ness among the poor, and began to move in the matter, and pro- 
vide remedies, then the black-death and the plague abated, and 
finally disappeared altogether. 

During the reign of Henry VIII., seventy-two thousand 
thieves arc said to have been hanged in England alone; which, if 
true, would indicate that "about one man in ten," during the 
reign, which extended over two generations, was, to use the 
words of the old historian, " devoured and eaten up by the 
gallows." ' But society has now found out that hanging is one 
of the worst possible uses to which a man can be put ; and 
that it is a great deal cheaper to prevent than to punish, to 
incur effort and expenditure to save the inefficient and the 
criminal from becoming such, rather than to save society from 
them after they have once become so ; and that, of one of 
these two courses, society has got to take its choice. Further- 
more, as showing how social-science investigations are taking 
propositions of this character out of the domain of philan- 
thropic theory, and making them practical matter-of-fact dem- 
onstrations, I submit to you the following illustrations. 

' Mr. Froude, while regarding this statement as wholly unwarranted, nevertheless 
admits, that the English criminal law of that period "was in its letter one of the most 
severe in Europe"; and that, " in the absence of graduated punishment, there was 
but one step to the gallows from the lash and the branding-iron." 



PRODUCTION AND DISTRIBUTION OF WEALTH. 243 

Thus it has been esthnated in England, that the ordinary ex- 
pense of bringing up a child from infancy to fourteen, in the best- 
managed public institutions or asylums, cannot be put down at 
less than 4?. 6d., or somewhat over a dollar (gold), per week ; and 
for the United States it is undoubtedly much greater. But 
taking the minimum sum as the basis of estimate, and allowing 
nothing for any outlay for education or amusement, the cost at 
fifteen would have amounted without interest to about eight 
hundred dollars ; and at eighteen, allowing for all expenditures 
and for interest, each individual may be regarded as an invest- 
ment by society of at least fifteen hundred dollars of capital econ- 
omized for production. 

Now, if from this period the individual fails to fully earn his 
own living, society loses not only the amount expended for his 
bringing-up, but other persons must be taxed on their labor and 
their capital to provide for his future support and maintenance ; 
so that the general stock of abundance at the disposal of society 
is not increased, but diminished. If the individual turns pauper 
or mendicant, and does nothing whatever for his own support, 
the cost to society will be greater, though differently apportioned. 
If he turns thief or criminal, he will be supported even yet more 
expensively by society ; for he will be maintained by plunder or 
in prison. But in whatever condition he may live, either idle or 
vicious, in prison or out of prison, the loss incurred by the com- 
munity for each such individual for his life, which, after the 
attainment of fourteen years, is likely to continue until forty, can- 
not be less in the United States than five thousand dollars ; a loss 
in Massachusetts alone, in which State at least one in fourteen of 
her entire population are paupers, criminals, or needlessly idle 
and dependent, which would be equivalent to an unproductive ex- 
penditure of over five hundred millions of capital — the results of 
some other person's labor — for each and every generation ' 

Another illustration to the same effect, drawn more directly 
from the domain of actual fact, and one of the most remarkable 
ever placed upon record, has been brought to the attention of the 
public by members of this association, — Dr. Harris and Mr. R. L. 
Dugdale of New York, — namely, the history of a female pauper 

' For this illustration, I am indebted to the address of Mr. Edwin Chadwiclc, C.B., 
at the opening of the meeting of the British Association for the Promotion of Social 
Science, 1869-70. 



244 PRACTICAL ECONOMICS. 

child, who some eighty years ago, abandoned as an outcast in one 
of the interior towns of New York, and allowed by society to re- 
main an outcast, has repaid to society its neglect by becoming 
the mother of a long line of criminals, paupers, prostitutes, drunk- 
ards, and lunatics; entailing upon the county of her residence 
alone an expense of over one hundred thousand dollars, and upon 
society at large an estimated cost of over one million of dollars; 
included under which last head, is an item of twenty-five thou- 
sand dollars for the simple prosecutions and trials of one hundred 
and twenty criminals and offenders, who received as the result an 
aggregate of one hundred and forty years' imprisonment." 

And thus it is, that reasoning from a purely economic point of 
view, and leaving all moral and religious conditions out of sight, 
we arrive at an absolute demonstration, that the very best thing 
society can do to promote its material interests, is to so far 
abandon its old principle of " eacJi man for hijiise/f," that each 
man shall concern himself with the welfare of his neighbors and 
fellow-citizens to the extent at least of seeing that the Devil be 
nowhere permitted to take even the humblest and weakest of the 
hindermost. By many, perhaps by a majority of the community, 
the Association for the Promotion of Social Science is undoubt- 
edly looked upon as an association of doctrinaires ; clever men 
naturally, but at the same time men of seclusion and of study, 
unacquainted with the details of practical life, who like to meet 

' Of the descendants of this pauper child and her sisters, 709 have been accurate- 
ly tabulated ; while researches by Mr. Dugdale indicate that ihe total aggregate of 
their descendants reach the large number of i ,200 persons, living and deod. 

"Of the 709, 91 are known to be illegitimate, and 36S legitimate, leaving 250 un- 
known as to birth. 128 are known to be prostitutes ; iS kept houses of ill-fame ; and 
67 were diseased, and therefore cared for by the public. Only 22 ever acquired prop- 
erty, and eight of these lost what they had gained ; 172 received out-door relief during 
an aggregate number of 734 years ; 64 were in the almshouse of the county, and spent 
there an aggregate number of 96 years ; 76 were publicly recorded as criminals. 

" The crimes of the females were licentiousness, and those of the males violence 
and Ihefc. But the record quoted is merely their public history of criminality, which 
is necessarily very imperfect. Great numbers of offences of this wretched family were 
never entered on any court records ; and hundreds were never brought to trial. 
Another appalling feature in this history of criminal inheritance, is the disease spread 
through the country by these vagrant children, and the consequent lunacy, idiocy, 
epilepsy, and final weakness of body and mind, which belongs to inherited pauperism, 
transmitted to so mnny human beings." — Report of Children's Aid Society, New 
■York, 1S75. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 24$ 

together periodically, hear themselves talk, and see their names 
appended to long articles in the magazines and newspapers. To 
any such I would commend, for instruction and conversion, a 
typical illustration of social-science work, as embodied in a paper, 
by Dr. W. E. Boardman of Boston, recently published by the 
State Board of Health of Massachusetts. In this paper it is 
shown that the rate of mortality in Massachusetts— twenty in a 
thousand— is higher than in most of the States of the Union ; 
that it compares quite unfavorably with many of the larger cities 
of Europe, that it tends to increase rather than diminish, and 
more especially that there is an increasing amount of death and 
sickness from causes which are known to be avoidable ; also, that 
there is every reason to suppose, that by encouraging the study 
and following out the teachings of sanitary science, the death rate 
of the State can be speedily reduced from twenty to fifteen per 
thousand ; and that, in case this is done, the saving in the 
cost of sickness and disability to the working classes alone of the 
State will not be less than three millions of dollars per annum. 
Now, if the man who makes two blades of grass grow where but 
one grew before, is a public benefactor, how much more so is the 
individual who, by the patient gathering and study of statistics 
like these, convinces a community of a danger in respect to which 
it would otherwise be long ignorant ; and then, as the result of 
such conviction, initiates a reform which not only greatly dimin- 
ishes the aggregate of human suffering, but also greatly increases 
the aggregate of material abundance? Nay, further, can any soil 
be cultivated, can any work be done, likely to yield so large 
fruition, so many blades bearing ears with full corn in the ear, as 
this work of the so-called doctrinaires f 

And there is yet one other thing which society is also begin- 
ning to f^nd out ; and that is, that all these questions relating to 
the production and distribution of wealth, and the avoidance on 
the part of society of waste, and the economizing of expenditure, 
affect an infinitely higher class of interests than those measurable 
by dollars and cents ; and that the laws underlying and control- 
ling economic progress are either identical with the laws underly- 
ing' and controlling intellectual, moral, and religious progress, or 
at least are so far similar and closely connected as to be mutually 
interdependent. And we hold furthermore, that it is mainly from 



246 PRACTICAL ECONOMICS. 

a lack of perception and appreciation of this truth, especially by 
those to whom the mission of making men better is particularly 
intrusted, that so much of the work undertaken in these latter 
days by philanthropic and religious associations has been like 
seed sown upon stony ground, productive of but little benefit, 

" The study and investigation of these questions of taxation, 
currency, and the production and distribution of wealth," said one 
of our best-known philanthropists lately, " are all very well, and 
undoubtedly most important ; but somehow they do not interest 
me. They seem to me to be wholly material, while the great 
thing, in my opinion, to be worked for on behalf of society, is the 
attainment of a larger life." 

Now, as to the ultimate issue and end of all our effort, I fully 
agree, a larger life is the one thing essential. It is the consumma- 
tion of all social progress, the crowning glory of all Christian civili- 
zation, the aspiration of a future state of existence. But on this 
earth, and while we continue in the flesh, in order that there may 
be a larger life, there must be an exemption from such servitude of 
toil as precludes leisure ; and, in order that there may be more 
leisure with less want, there must be a greater abundance ; and, 
in order that there can be greater abundance, there must be larger 
production, more economical using, and a more equitable distribu- 
tion. So that instead of there being any real or fancied antago- 
nism, or diversity of interest, between the work of investigating and 
determining the laws which govern the production and distribu- 
tion of wealth, and the business of calling men to a larger and a 
higher life, the former, as society is at present constituted, must 
be the forerunner and coadjutor of the latter; or the labor of the 
latter, as has been too often the case, will be labor in vain. 

When Van der Kempt, a Dutch missionary, first entered upon 
his work in South Africa, he devoted himself in the outset to the 
labor of reconstructing and improving the dwellings of the na- 
tives ; and for this purpose followed for a time the business of 
the brickmaker, the mason, and the carpenter. When taken to 
task for doing these things, rather than devoting his whole time 
to the preaching of the gospel, he is said to have made answer 
substantially as follows : that while he had no doubt that the 
Spirit of God would enter a brush hut with a mud floor, and 
dwell therein, he felt equally certain that it would come more 



PRODUCTION AND DISTRIBUTION OF WE A ITU. 247 

readily into a house with a tiled roof, dry floor, and glazed win- 
dows ; and, when there, would be more likely to abide perma- 
nently. And he was right ; for the reason that it is not easy — 
nay, all but impossible — to lead a life of intellectuality, purity, 
and righteousness, amid filth, poverty, and all the adjuncts of 
physical debasement. And, if this proposition be correct, then it 
is a condition precedent to the future progress and well-being of 
society, _7?rj'2', that there shall be continually increasing abundance ; 
and, second, that this abundance shall also, to the greatest extent 
consistent with the retention and exercise of individual freedom, 
be equally distributed among the masses. And the great ques- 
tion of the age, one which the course of events shows that we 
must before long, either voluntarily or involuntarily, meet and 
answer, is, How can these ends be best accomplished? 

By the majority of those who have undertaken to discuss these 
questions in the interests of labor, the idea is put forth that the 
ends desired can be most fully and rapidly attained through the 
enactment of law ; but, in respect to the extent to which the law 
is to be made operative, the ideas which are entertained and 
expressed have no little of diversity. 

In Europe, the masses emerging from the sluggishness and 
torpor in which for centuries, like brutes, they have been content 
to suffer and to wait, and grasping at once the idea — long familiar 
to the people of this country— that all men are created equal, 
have speedily passed to a conviction that, because thus created 
equal, they have, in common with all, an equal right to all acquired 
property. And hence we find such leaders in the labor-movement 
as Proudhon and others in France and Germany, assuming and 
maintaining the position '^ tJiat property is theft,'" and demanding 
that through legislation the State shall take possession of all 
property, and provide for all its citizens an equal and adequate 
support. 

Now, it would seem as if no argument could be needed in this 
country to expose the wickedness and folly of such a proposition ; 
and yet such doctrines, in a thinly disguised form, are continually 
preached in this country by men claiming to be respectable and 
intelligent to a much greater extent than the community are gen- 
erally aware ; and not only preached, but received with an appa- 
rently increasing favor and interest. Thus, for example, in a 



248 PRACTICAL ECONOMICS. 

tract issued by one of the recognized leaders of the eight-hour 
movement in Massachusetts, I find the statement that the ulti- 
mate end and meaning of this special labor reform is to be the 
compulsory limitation of labor by legislative enactment to six 
hours per day ; and that, out of such a law and co-operation, it 
will follow, that ''the cMumoncst or the most obscure laborer will 
live, if he chooses, in dwellings as beautiful and as convenient as any 
which are noiv monopolised by the wealthy." ' To render his plan, 
however, in any degree practicable, the author singularly omitted 
to provide by statute that all men should be born with an exact 
physical and mental capacity for production, and that, if any one 
by increased industry or frugality should perchance produce more 
than another, the surplus should be forcibly taken from him 
without compensation. Under such circumstances it cannot be 
doubted that all at no distant day would come to live in houses 
of equal similarity ; but the style of architecture which would 
prevail would probably closely resemble that which now charac- 
terizes such truly free localities as the Desert of Sahara, the in- 
terior of Caffrc-land, or the domains of the Esquimaux. 

Other illustrations to the same effect may be found in the 
circumstance that a paper is now issued regularly in New England, 
which is devoted mainly to the object of combating the receipt 
of interest or hire for the loan or use of capital, or, what is the 
same thing (whether the editors be or be not conscious of it), of 
combating abundance or accumulation ; that the same idea finds 
favor in numerous pamphlets recently issued in various parts of 
the country, some of which exhibit no small ability ; and finally 
in the disposition so frequently evinced by our legislative 
bodies, to deal with corporate property in accordance with the 
principle of might, rather than in accordance with the principle of 
right. 

It is therefore well for us, even here in this boasted land of 
freedom and intelligence, occasionally to go back to first princi- 
ples, and see where these ideas about the distribution of wealth 
by direct or indirect compulsion, or about diminishing the incen- 
tives for personal accumulation, are likely to lead us. 

It is evident, in the first place, that such notions are wholly 
antagonistic to the idea of personal freedom, unless we mean to 

* The Meaning of the Eight-Hour Movement. Ira Steward, Boston, 1S68. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 249 

restrict the meaning of freedom simply to the possession and con- 
trol of one's own person irrespective of property, which would in- 
volve little more than the right to free locomotion ; and, second, 
rhat they tend to impair the growth of, if not wholly to destroy, 
civilization itself. For if liberty is not afforded to all, rich and 
poor, high and low, to keep, and to use in whatever way they may 
see fit, that which they lawfully acquire, subject only to the neces- 
sary social restraint of working no positive ill to one's neighbor, — 
then the desire to acquire and accumulate property will be taken 
away ; and capital, meaning thereby not merely money, which 
constitutes but a very small part of the capital of any community, 
but all those things which are the accumulated results of labor, 
foresight, and economy,— the machinery by which abundance is 
increased, toil lightened, and comfort gained, — will, instead of in- 
creasing, rapidly diminish. 

And, in order to comprehend the full meaning of this state- 
ment, allow me to call your attention to an illustration of the 
extreme slowness with which that which we call capital accumu- 
lates, even under the most favorable circumstances. 

By the census of 1870, the aggregate wealth of the United 
States, making all due allowances for duplication in valuation, was 
probably not in excess of twenty-five thousand millions. But vast 
as the sum is, and difficult as it certainly is for the mind to form 
any adequate conception of it in the aggregate, it is, nevertheless, 
most interesting to inquire what it is that, measured by human 
effort, it represents. And the answer is, that it represents, first, 
a value, supposing the whole sum to be apportioned equally, of 
about six hundred and twenty dollars to each individual, — not a 
large amount, if one was to depend on its interest at six per cent, 
as a means of support ; and, second, it represents the surplus re- 
sult of all the labor, skill, and thought exerted, and all the capital 
earned and saved, or brought into the country, for the last two 
hundred and fifty years, or ever since the country became practi- 
cally the abode of civilized men. 

Now, with capital, or the instrumentalities for creating abun- 
dance, increasing thus slowly, it certainly stands to reason that we 
need be exceedingly careful, lest, by doing any thing to impair 
its security, we impair also its rate of increase ; and we accordingly 
find, as we should naturally expect from the comparatively high 



250 PRACTICAL ECONOMICS. 

education of our people, that the idea of any direct interference 
with the rights of property meets with but Httle favor upon this 
side of the Atlantic. But at the same time we cannot deny that 
many of the most intelligent of the men and women interested in 
the various labor-reform movements in this country, taking as the 
basis of their reasoning the large nominal aggregate of the na- 
tional wealth, and the large advance which has recently been 
made in the power of production, and considering them in the 
abstract, irrespective of time or distribution, have nevertheless 
adopted the idea — vague and shadowy though it may be, — that 
the amount of the present annual product of labor and capital is 
suflficient for all ; and that all it is necessary to do to insure com- 
fort and abundance to the masses, is for the State somehow to 
intervene, — either by fixing the hours of labor, or the rates of 
compensation for service, or the use of capital, — and compel its 
more equitable distribution. 

Now, that a more equitable distribution of the results of pro- 
duction is desirable, and that such a distribution does not at 
present take place to the extent that it might without impairing 
the exercise of individual freedom, must be admitted ; but, be- 
fore undertaking to make laws on the subject, is it not of import- 
ance to first find out how much we have really got to divide ? 

Let us see. 

Stated in money, the maximum value of the annual product 
of the United States is not in excess of $7,000,000,000 (probably 
less); of which the value of the annual product of all our agricul- 
ture, — our cotton and our corn, our beef and our pork, our hay, 
our wheat, and all our other fruits, — is returned by the last census 
with undoubted approximative accuracy, at less than one half that 
sum ; or in round numbers at $2,400,000,000. 

But while this sum of estimated yearly income, like the figures 
which report the aggregate of our national wealth, is so vast as to 
be almost beyond the power of mental conception, there is 
yet one thing about it which is certain, and can be readily com- 
prehended ; and that is, that of this whole product, whether we 
measure it in money or in any other way, fully nine tenths, and 
probably a larger proportion, must be immediately consumed, in 
order that we may simply live, and make good the loss and waste 
of capital previously accumulated ; leaving not more than 07te 



PRODUCTION AND DISTRIBUTION OF WEALTH. 25 I 

ienth to be applied in the form of accumulation for effecting a 
future increased production and development.' 

Or to state the case differently, and at the same time illustrate 
how small, even under the most favorable circumstances, can be 
the annual surplus of production over consumption, it is only 
necessary to compare the largest estimate of the value of our 
annual product, with our largest estimate of the aggregate national 
wealth, to see that, practically, after two hundred and fifty years 
of toiling and saving, we have only managed as a nation to get 
about three years and a half ahead, in the way of subsistence ; and 
that now if, as a whole people, we should stop working and pro- 
ducing, and repairing waste and deterioration, and devote our- 
selves exclusively to amusement and idleness, living on the ac- 
cumulation of our former labors or the labor of our fathers, four 
years would be more than sufificient to starve three fourths of us 
out of existence, and reduce the other one fourth to the condi- 
tion of semi-barbarism ; a result, on the whole, which it is well to 
think of in connection with the promulgation of certain new theo- 
ries, that the best way of increasing abundance, and promoting 
comfort and happiness, is by decreasing the aggregate and oppor- 
tunities of production. 

In fact, there are few things more transitory and perishable 
than that which we call wealth ; and, as specifically embodied in 
the ordinary forms we see about us, its duration is not, on the 
average, in excess of the life of a generation. 

The railroad system of the country is estimated to have cost 
more than four thousand millions of dollars ^ ; but if left to itself, 

' According to the more reliable data furnished by the U. S. Census of 1880, the 
aggregate wealth of the country has been estimated at about forty thousand millions of 
dollars ($43,642,000,000 ; which, if equally divided among the whole population, would 
have amounted to $880 per head ; or, omitting the value of land, the value of the actual 
wealth of the United States, created by the hand of man during the whole period of its 
history, could not have been more, in 1880, than from $400 to $500 for each person. 

The value of the annual product of all the labor and capital of the United States 
for 1880, according to estimates based on the census data of that year, was $8,500,000,- 
000. As the population of the country, in 1880, was fifty millions (50,155,783). the 
average annual share of each person of this product would have therefore been about 
$170 ; which would make the average individual expenditure permissible to meet the 
expenses of living, provided each person was obliged to live on the results of his own 
labor, about 47 cents per day. 

^ The share capital and funded and floating debts of the railroads of the United 
States, for the year 1883, have been estimated at $6,765,000,000. 



252 PRACTICAL ECONOMICS. 

without renewals or repairs, its value as property in ten years 
would entirely vanish ; and so also with our ships, our machinery, 
our tools and implements, and even our land when cultivated 
without renovation. For it is to be remembered, that those same 
forces of nature which we have mastered, and made subservient 
for the work of production, are also our greatest natural enemies, 
and if let to themselves will tear down and destroy much more 
rapidly than under guidance they will aggregate and build up. A 
single night was sufficient in Chicago to utterly destroy what was 
equivalent to one quarter of the whole surplus product which dur- 
ing the preceding year the nation had accumulated ; and of all 
the material wealth of the great and rich nations of antiquity, — 
of Egyptian, Assyrian, Tyrian, and Roman civilizations, — nothing 
whatever has come down to us, except, singularly enough, those 
things which, like their tombs and public monuments, never were 
possessed of a money valuation. 

But the inferences which we are warranted in drawing from 
these facts and figures are by no means exhausted. Supposing 
the value of our annual product to be equally divided among our 
present population : then the average income of each individual 
would be about %\'Jo per annum ; out of which food, clothing, 
fuel, shelter, education, travelling expenses, and means of enjoy- 
ment are to be provided, all taxes paid, all waste, loss, and de- 
preciation made good, and any surplus available as new capital 
added to former accumulations. 

Now, if at first thought this deduction of the average indi- 
vidual income of our people seems small, it should be remembered 
that it is based on an estimate of annual national product greater 
both in the aggregate, and in proportion to numbers, than is en- 
joyed by any other nation, our compeers in wealth and civiliza- 
tion ; and, further, that this $170 is not the sum which all actually 
receive as income, but the average sum which each would receive, 
were the whole annual product divided equally. But as a practical 
matter we know that the annual product is not divided equally; 
and, furthermore, that, as long as men are born with different 
natural capacities, it never will be so divided. Some will receive, 
and do receive, as their share of the' annual product, the annual 
average we have stated, multiplied by hundreds or even thou- 
sands ; which of course necessitates that very many others shall 



PRODUCTION AND DISTRIBUTION OF WEALTH. 253 

receive proportionately less. And how much less is indicated by 
recent investigations which show, that for the whole country the 
average earnings of laborers and unskilled workmen is not in ex- 
cess of four hundred dollars per annum, — the maximum amount 
being received in New England, and the minimum in the Southern, 
or former slaveholding States ; which sum, assuming that the 
families of all these men consist of four, two adults and two 
children, would give one hundred dollars as the average amount 
which each individual of the class referred to produces, and also 
the amount to which each such individual must be restricted in 
consumption ; for it is clear, that no man can consume more than 
he or his capital produces, unless he can in some way obtain the 
product of some other man's labor without giving him an equiva- 
lent for it. 

We are thus led to the conclusion that, notwithstanding the 
wonderful extent to which we have been enabled to use and con- 
trol the forces of nature for the purpose of increasing the power 
of production, the time has not yet come, when society in the 
United States can command such a degree of absolute abundance 
as to justify and warrant any class or individual, rich or poor, and 
least of all those who depend upon the product of each day's 
labor to meet each day's needs, in doing any thing which can in 
any way tend to diminish abundance ; and furthermore, that the 
agency of law, even if evoked to the fullest extent in compelling 
distribution, must be exceedingly limited in its operations. 

Let the working-man of the United States, therefore, in every 
vocation, demand and strive, if he will, for the largest possible 
share of the joint products of labor and capital ; for it is the 
natural right of every one to seek to obtain the largest price for 
that which he has to sell. But if in so doing he restricts produc- 
tion, and so diminishes abundance, he does it at his peril ; for, by 
a law far above any legislative control or influence, whatever in- 
creases scarcity not only increases the necessity, but diminishes 
the rewards of labor. 

Street processions, marching after flags and patriotic mottoes, 
even if held every day in the week, will never change the condi- 
tions which govern production and compensation. Idleness 
produces nothing but weeds and rust ; and such products are 
not marketable anywhere, though society often pays for them 
most dearly. 



254 PRACTICAL ECONOMICS. 

But if law, acting in the manner proposed by the representa- 
tives of the working-men, is not likely to avail any thing, and if 
abundance is not as great as it might be, and distribution not as 
equitable as it ought to be, wherein is the remedy ? Shall we let 
things drift along as in times past, trusting that Providence 
will finally do for us what we are unwilling or unable to do 
for ourselves ? 

My answer to this is, that the first step towards effecting a so- 
lution of the problem under consideration is to endeavor to clearly 
comprehend the conditions involved in it ; and that, when we 
have entered upon an investigation for that purpose, we shall 
soon see that the causes which tend to diminish abundance, and 
restrict the rewards of labor, in the Old World, are not the 
same as exist in the New ; and that therefore the agencies 
adopted for relief in the one case are not likely to prove remedial 
in the other. 

In the Old World, the prime cause of the lack of abundance, 
and its resulting pauperism, is an over-crowded and increasing 
population, and the enormous waste and expenditures contingent 
on great standing armies and a continued war policy. 

All the natural resources, originally the free gift of Nature, 
have long ago been fully appropriated, and in part exhausted. 
Every foot of arable land has its owner or tenant ; every mine, 
quarry, forest, or tree-bearing fruit, its possessor ; and even the 
right to fish in the waters, or capture the wild beasts of the field, 
or the fowls of the air, has become in a great degree an exclusive 
privilege. 

When there is but 07ic to buy, and two to sell, the buyer fixes 
the price. When there are two to buy, and only one to sell, the 
seller has the advantage. 

Now, Europe, in respect to labor, has been for centuries the 
seller, rather than the buyer, of labor ; and the buyer, therefore, 
has always been, and is now, all-powerful in fixing its price, and 
controlling it to his advantage. Again, in a country whose 
natural capital or resources — i. e., fertile and cheap land, abun- 
dant timber, food, minerals, etc. — are unexhausted or unappropri- 
ated, as in the United States, the rewards of labor, or wages, will 
be necessarily high ; and on the other hand, where the reverse 
condition of things prevails, as in Europe, the rewards of labor, as 



PRODUCTION AND DISTRIBUTION OF WEALTH. 255 

expressed in wages, must be comparatively less. In other words, 
as has been pointed out by Prof. Cairnes : " So far as high wages 
and profits are indications of cost of production at all, high wages 
and profits are indications of a low cost of production, since they 
are indications — being, in fact, the direct results — of high indus- 
trial productiveness." Nothing, therefore, more strikingly illus- 
trates the difference in the conditions of the labor-problem in 
Europe and the United States, than the difference in the average 
rate of the wages of labor in the two countries ; and also the fal- 
lacy of the popular notion, that legislative interference is neces- 
sary in the United States to protect domestic industry against 
the pauper-labor of Europe ; or, in other words, to protect the 
people of the United States against the evils of abundance. 

Under such a state of things, therefore, the efificient remedy, 
and indeed the only remedy, against pauperism in an overcrowded 
country, must* be emigration ; and it is one of the most curious 
of social phenomena, that, while the results of the most recent in- 
vestigations show that thousands in the great cities of Europe 
are annually crowded out of existence by the mere fact of their 
numbers, there are yet almost continental areas of the earth's sur- 
face, healthy, easy of access, and comparatively uninhabited, 
where the amount of labor necessary to secure all the essentials 
of a simple livelihood is but little in excess of the instinctive re- 
quirements of the system for physical exercise ; as, for example, 
in the delicious islands of Polynesia, where a temperature obviat- 
ing any requirement for artificial heat prevails uninterruptedly, 
and where the plantain, the cocoa-palm, and the bread-fruit spring 
up and flourish spontaneously ; and also in the West Indies, 
where the late Charles Kingsley, in his book '' A Christmas in the 
West Indies " (1871), says, that one of the first things which a 
visitor learns in landing at " Port of Spain," in the Island of 
Trinidad, is, that there are eight thousand persons, or about one 
third of the population of the city, who have no visible means of 
support, or who live without regular employment, and yet are 
evidently strong, healthy, and well fed. The same author also 
describes the life of an English emigrant in this island, whom he 
visited, as follows : 

" The sea gives him fish enough for his family. His cocoa- 
palms yield him a little revenue. He has poultry, kids' and goats' 



256 PRACTICAL ECONOMICS. 

milk more than he needs. His patch of provision-ground gives 
him corn and roots, sweet potatoes, and fruits all the year round. 
He needs nothing, fears nothing, owes nothing." 

But, per contra, Mr. Kingsley adds : 

" News and politics are to him like the distant murmur of the 
surf at the back of the island, — a noise which is nought to him. 
His Bible, his almanac, and three or four old books on a shelf, are 
his whole library. He has all that man needs, more than man 
deserves, and is far too wise to wish to better himself "; which last 
expression is equivalent to saying, that, the animal wants being 
abundantly satisfied, he wishes to remain an animal. And this 
conclusion, furthermore, may be regarded as the result of necessity 
rather than of choice ; for, if man resident in the tropics is desirous 
of any thing much beyond what Nature furnishes almost as a free 
gift, the realization of the desire can only be attained through 
labor under conditions of climate so exhausting that the white 
race shrinks from its execution, and for the most part is incapable 
of its endurance ; as is seen, for example, in the raising of cotton, 
coffee, sugar, and other similar tropical productions. And it 
would indeed seem as if Nature, in view of the fact that great 
physical exertion and an elevated temperature are incompatible, 
had made provision for man's residence in the tropics by furnish- 
ing him, with the minimum of exertion, those vegetable products 
which are especially adapted to maintain and support a physical 
existence. And whether we admit the example of design or not, 
it is certainly curious to note how man, when transferred from 
temperate zones to tropics, instinctively adapts himself to these 
conditions, and exchanges a life of activity for one of indolence. 
Of this, the description of the European emigrant in the West 
Indies, which I have quoted from Mr. Kingsley, is one illustration. 
Another is to be found in the fact, often noted and commented 
on, of the rapidity with which young men of New England, sent 
out as clerks or factors to Singapore, Manilla, or Calcutta, ex- 
change their original physical and intellectual activity for the 
listless indolence of the native population. And, descending to 
the animal kingdom, it is said that the northern honey-bee, trans- 
ported to the tropics, ceases after the first season to make provi- 
sion for the winter, and, laying aside its habits of industry with 
the necessity for exertion, becomes not only a drone, but a veritable 
pest to the community. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 257 

In the United States, on the other hand, the case is entirely- 
different. We have, in the first place, no excess of population in 
proportion to the area of country inhabited ; but, on the contrary, 
we have, as a source of abundance and a certain barrier against 
want, that which no nation of Europe possesses ; namely, an 
almost unlimited supply of cheap, fertile land. We have such a 
variety of soil, of climate, and of crop, that a deficiency of food, 
which in very many civilized countries is ever a source of anxiety, 
is with us a matter of impossibility ; for the very conditions which 
tend to reduce the aggregate of the crops in one section tend to 
increase their fruition in some other. We have, as it were, the 
monopoly of the staple textile fibre of the world's clothing. We 
have more of coal, the symbol and the source of rnechanical 
power, than exists in all other countries. We have every facility, 
natural and artificial, for the transportation and exchange of 
products. We have a form of government in which the will of 
the people constitutes the law. We have, in short, all the condi- 
tions which give to labor its greatest productiveness, and to 
capital its greatest reward. And if to-day these conditions are 
not fulfilled ; if there is not to-day unison between labor and 
capital ; if there is not a sufficient degree of material abundance, 
and a sufficient equity in its distribution, to lift up life among the 
masses, and make it somewhat more than a struggle for existence, 
— then we shall be forced to one of two conclusions : either the 
obstacles which militate and prevent these results are all artificial; 
or that it is in accordance with the designs of Providence that 
there shall always be a needy and dependent class, that there is a 
natural antagonism between labor and capital, and that the capac- 
ity of the earth for production is not adequate to meet the natural 
increase of the population that Providence has placed upon it. 

Now, I, for one, fully accept the first of these conclusions, and 
wholly reject the latter. And although there is much about us 
which would seem to indicate that the characteristic evils which 
affect society in the (9/<^ World are being transferred to \.\i& New ; 
though the present tendency seems to be toward a concentration 
of wealth in a few hands, to make the rich richer and the poor 
poorer, — I nevertheless feel certain that the causes which have 
led to these results, and which for the present stand in the way of 
a greater abundance and a larger life, are wholly within our con- 



258 PRACTICAL ECONOMICS. 

trol, and essentially different from the causes which in Europe are 
recognized as working disadvantageously to the interests of the 
masses. To specifically enumerate them, and to point out the 
degree in which each is operative, may not as yet, through lack 
of reliable data, be practicable ; but, generalizing broadly, three 
causes may be mentioned as especially militating against the aug- 
mentation of abundance in the United States : 

First, Failure to secure the proper and possible maximum of 
production in industrial enterprises which have long since passed 
beyond the domain of experiment. 

Second, Inexcusable and inordinate waste in using. 

Third, Inequalities in distribution, due to obstruction created 
by legislation. 

I have thus reviewed, as briefly as the subject will admit, some 
of the principal obstacles which at present, in this country'-, seem 
to me to stand in the way of a greater material abundance, a more 
equitable distribution, and a larger life. Did time and opportu- 
nity sufBce, an almost infinite amount of curious and interesting 
illustrations, drawn from our recent national experiences, might be 
given ; but, apart from any further detail, the general results of 
our economic progress since i860 may be summed in brief as 
follows : We have increased the power of production with a 
given amount of personal effort throughout the country, probably 
at least tivciity-fivc, and possibly forty per cent. We have not de- 
creased the cost of living within the same period, to the masses, to 
any thing like the same extent." But startling as is this 
statement, the truth of which any man can verify if he will, the 
attainment of a better result is entirely within the power of society 
in this country to effect, if it will only avail itself of remedies 
whose simplicity and effectiveness long experience has proved 
beyond all controversy. 

But herein consists the difficulty. Like Naaman the Syrian, 
we are anxious to be cleansed ; but, like Naaman, we expect to 
be called upon to do some great thing, and experience a measure 
of disappointment when* told that the simplest measures are likely 
to prove the most effectual. 

' An analysis of the business of manufacturing pig-iron indicates an increased pro- 
duct in 1879 as conpared with lS6o — capital remaining the same — of forty-six per 
cent. ; diminution in the number of hands employed 6jjy5 per cent. ; increase of 
wages per hand, 37j^jj per cent. 



PRODUCTION AND DISTRIBUTION OF WEALTH. 259 

In point of natural resources, Providence has given us all that 
we desire. And that these resources may be made productive of 
abundance, great and overflowing, to all sorts and conditions 
of men, there must be, first, industry and economy on the 
part of the individual; and, second, on the part of society, a 
guaranty that every man shall have an opportunity to exert his 
industry, and exchange its products, with the utmost freedom and 
the greatest intelligence ; and, when society has done this, we will 
have' solved the problem involved in the relations of capital and 
labor, so far as the solution is within the control of human agency ; 
for in giving to each man opportunity, conjoined with feedom and 
intelligence, we invest him, as it were, " with crown and mitre, 
and make him sovereign over himself." 



APR 1 1 1904 



